Lee saves most of his money from his paycheck; he forgoes restaurant meals, new clothes, and...

Lee saves most of his money from his paycheck; he forgoes restaurant meals, new clothes, and a new car, and he lives in a small one-bedroom apartment. He understands that his utility is low now. However, his ______________ will give him _____ utility in the future.

A. planning; lower time-preference

B. decision making; higher intertemporal

C. decision making; lower intertemporal

D. decision making; higher

Solutions

Expert Solution

Time Preference is the degree to which you value having a particular item today versus having it tomorrow. High time preference means you want things right now, whereas low time preference means you're willing to wait. Thus the second part of option A is correct as Lee is saving most of his money and sacrificing everything so that can enjoy higher utility in future while first part is not correct as planning is to plan something which is not the case here. Lee is implementing everything to cut cost.

Intertemporal choice is the process by which people make decisions about what and how much to do at various points in time, when choices at one time influence the possibilities available at other points in time. There is no higher or lower intertemporal point.

Option D is correct as it is a decision making process in which you act some important decisions and you will get higher level of utility in future of consuming goods.

Rahul Sunny answered 1 month ago

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