Situational Impatience
Situational impatience describes a preference for immediate consumption that is driven by an individual's current financial circumstances. This is particularly evident when a person has very little now but anticipates having significantly more in the future. In such a scenario, the marginal utility of an additional unit of consumption in the present is much higher than the marginal utility of that same unit later. This disparity creates a strong motivation to exchange more than one unit of future consumption for a single unit of present consumption, which helps to smooth consumption over time. This concept is visually demonstrated in Figure 9.4a. [1]
0
1
Tags
CORE Econ
Economics
Social Science
Empirical Science
Science
Economy
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.9 Lenders and borrowers and differences in wealth - The Economy 2.0 Microeconomics @ CORE Econ
Related
Situational Impatience
Intrinsic Impatience
Analyze each scenario and match it to the correct legal interpretation based on the principle of equal pay for similar work.
A medical student has very little income now but has accepted a high-paying job that starts in one year. They decide to take out a loan to finance a modest vacation, reasoning that the enjoyment they get from the trip now is worth more than paying back a slightly larger amount from their future high salary. Which economic concept does this decision best illustrate?
Analyzing Economic Impatience in Decision-Making
Analyzing Consumer Behavior
Two individuals, Alex and Ben, are offered a choice: receive $100 today or $110 in one year. Alex, who has very little income now but expects a large salary increase next year, chooses the $100 today. Ben, who has a stable and high income that is not expected to change, also chooses the $100 today. Which statement best analyzes the economic impatience displayed by Alex and Ben?
An individual with a stable income who chooses to receive $100 today over $105 in one year is demonstrating a preference for consumption smoothing.
Differentiating Types of Economic Impatience
Analyze each scenario and match it to the type of economic impatience it best illustrates. If a scenario does not illustrate impatience, match it to 'Neither'.
An economist observes that both recent graduates with low current income but high expected future income, and tenured professors with stable high incomes, frequently use credit to make purchases now rather than waiting. The economist concludes that since the behavior is the same, the underlying reason for their economic impatience must also be the same. Evaluate this conclusion.
Analyzing Motivations for Impatience
Analyzing Consumer Behavior
Learn After
Figure 9.4a: Illustration of Situational Impatience
A freelance graphic designer is experiencing a temporary lull in projects, leaving them with very low income for the current month. However, they have just signed a contract for a large, lucrative project that will provide a substantial payment in three months. The designer chooses to use a high-interest credit card to purchase a new, non-essential piece of equipment they've wanted. Which of the following economic principles best explains the designer's decision to borrow at a high cost?
Analyzing Consumption Choices
Explaining Consumption Preferences
An individual who currently has a high level of resources but anticipates having significantly fewer resources in the future will exhibit a strong preference to borrow heavily in order to consume even more in the present.
Comparing Economic Impatience in Different Scenarios
A university student has only $50 left for the final month of the semester but has a guaranteed, well-paying job starting in one month. The student decides to take out a small, high-interest loan to cover their living expenses and a few social outings. According to the principles of intertemporal choice, what is the most accurate analysis of the student's decision-making?
Match each individual's financial situation with the most likely description of their preference for present versus future consumption.
A subsistence farmer has nearly exhausted their food stores and savings just before the annual harvest, but they anticipate a large income in two months when they sell their crops. The farmer chooses to take out a loan, agreeing to pay back 1.5 bushels of grain in the future for every 1 bushel they receive today. From an economic perspective, what is the most accurate analysis of this decision?
When an individual has very low income now but expects a high income in the future, the marginal utility of an additional dollar today is significantly ______ than the marginal utility of an additional dollar in the future, leading them to value present consumption more highly.
A recent law school graduate is studying for the bar exam. They have minimal savings and no current income, but they have a signed offer for a high-paying job that begins in four months, contingent on passing the exam. They decide to take out a personal loan to cover their expenses until their job starts. Arrange the following statements to reflect the logical sequence of economic reasoning that explains this decision.
Explaining Julia's Situational Impatience at Her Endowment Point