Question

Construct an example of your own that would illustrate why a consumer would wish to spread his

consumption over time rather than consuming it all now. In another example, demonstrate that a

consumer would wish to consume all his income now, rather than spreading it over time.

Answer 1

Answer

An example of why a consumer would want to spread his consumption over time could be when a consumer feels that there could be a war like situation in the near future, where there would not be much sources of income, he would prefer to save his income and spread his consumption over time so that he has money to consume in times of war as well.

An example of why a consumer would want to consume all of his income now rather than spreading it over time could be when the consumer knows that the economy is moving into hyper-inflation. In such a condition his money's value would reduce every second. Thus, he/she would prefer to consume everything now than to spread consumption in the future.