Intertemporal substitution is the process of maximizing utility by allocating resources across time. For clarity, the standard analysis focuses on a two-period analysis of the present and the future.
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Intertemporal
Substitution
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This EconModel application studies three basic cases:
A Simple Endowment - The agent is given a certain amount of wealth in each of the two periods.
Saving for Retirement - A production possibility frontier describes
the agent's options with respect to working in each of the two periods.
The agent simultaneously decides how much to work in each period and how much to
consume in each period.
Investing in Education - A production possibility frontier describes how working less in the first period (the agent's youth) leads to a higher income in the second period (the agent's middle age). Access to financial markets leads students to invest more in education and to attain a higher utility than if they could not borrow money.
Classic Economic Models
Microeconomics
Introduction
Overview of Micro Models
Supply and Demand
Basic Supply and Demand
Who Pays a Sales Tax?
The Cobweb Model and
Inventory-Based Pricing
Theory of the Firm
Perfect Competition
Monopoly and
Monopolistic Competition
Price Discrimination
The Demand for Labor
Theory of the Consumer
Two Goods - Two Prices
Intertemporal Substitution
Labor Supply, Income Taxes,
and Transfer Payments
Macroeconomics
Introduction
Overview of Macro Models
Models in Chronological Order
The Classical Model
The Simple Keynesian Model
The Keynesian IS/LM Model
The Mundell-Fleming Model
Real Business Cycles
The IS/MP Model
The Solow Growth Model
Financial Markets
Utility-Based Valuation of Risk
Mean-Variance Analysis:
Risk vs. Expected Return
Fixed Income Securities:
Mortgage/Bond Calculator
Growth Investments:
Present Value Calculator
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