Question

Question 2 [20 marks] (a) Explain what is meant by inter-temporal choice. (5) (b) Draw and explain an inter-temporal budget constraint. (5) (c) Use the indifference curve approach to derive the Marshallian demand curve (10)

Answer 1

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1. Inter-temporal choice is an economic term describing how an individual's current decisions affect what options become available in the future. Theoretically, by not consuming today, consumption levels could increase significantly in the future, and vice versa.

For individuals, these decisions relate more to saving and retirement, while for firms, various investment decisions involve inter-temporal choice. For example, an individual who saves today consumes less, causing his or her current utility to decline. Over time, the savings grow, increasing the number of goods the individual can consume and, therefore, the person's future utility.