The price of ________ consumption in terms of ________ consumption is ________.
A) future; current; 1/(1 + r)
B) present; future; 1/(1 + r)
C) future; current; r
D) present; future; r
E) future; current; 1 + r

Question

Quizplus · Accepted Answer

This question refers to the concept of intertemporal trade-offs, which involves choosing between consuming resources now versus saving them for future consumption. The price of future consumption in terms of current consumption is the opportunity cost of saving resources, which is the return that could have been earned by investing those resources. Therefore, the correct answer is A, which states that the price of future consumption in terms of current consumption is 1/(1 + r), where r is the relevant interest rate. This reflects the fact that resources saved today can be invested and grow by a factor of 1 + r over time, meaning that in the future, each unit of resources saved today will be worth 1 + r units of resources. Conversely, the price of current consumption in terms of future consumption is 1 + r, reflecting the fact that resources consumed today cannot be invested and will therefore not grow in value over time. The other answer choices do not accurately reflect this concept.

The Price of ________ Consumption in Terms of ________ Consumption

The Price of Consumption in Terms of Consumption