Optimality Condition for Intertemporal Choice: MRS = MRT
An individual's optimal allocation of consumption between the present and the future is achieved at the point of tangency between their highest attainable indifference curve and the feasible frontier. At this point, the slope of the indifference curve, known as the Marginal Rate of Substitution (MRS), equals the slope of the feasible frontier, the Marginal Rate of Transformation (MRT). This equilibrium condition, MRS = MRT, is equivalent to stating that the individual's subjective discount rate is equal to the market interest rate.
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