ECO200Y1 Lecture Notes - Lecture 9: Indifference Curve, Equilibrium Point, Tax Deduction
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ECO200Y1 Full Course Notes
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Source: bb5, chapter 4, pages 128-132. (bb4, chapter 4, pages 126-130). Note that your text introduces this topic prior to se and ie. In class, we are doing it afterwards, so we can analyze the effect of changes in the rate of interest on borrowing-savings decisions using that methodology. Til now, we have considered the consumer"s choice between goods x and y in a given time period. Now we consider the consumer"s choice of goods between time periods i. e. , the decision whether to consume today or to save and thereby consume more. tomorrow since savings earn an interest return that increases purchasing power. Consider two time periods (years) 1 and 2. The consumer has a known money income in each year: m1 and m2. The consumer can lend / borrow at a rate of interest of r per cent per year.
