1. Total Consumption (Income) in Period 2W
Total Consumption (Income) in Period 2
Y2 = Y*2a
la = l*a
45° O
Y1 = Y*1a W
Figure 7.1a. Neutral time preference.
Total Consumption (Income) in Period 1 W
Total Consumption (Income) in Period 2 Y2
Y*2b
l*b lb
45° O Y1
Y*1b W
Figure 7.1b. Positive time preference.
Total Consumption (Income) in Period 1 W
Total Consumption (Income) in Period 2
Y*2c Y2
l*c lc
45° O
Y*1c Y1 W
Figure 7.1c. Negative time preference.
Total Consumption (Income) in Period 1
Figure Neutral, positive, and negative time prefeeences.

2. 3
W (1 + r) 2
Y2 + Y1 (1 + r) W 1
Total consumption (income) in Period 2
Y*2’’’
Y*2’’
l*a’’’
Y2 = Y*2’
l*a’’
la = l*a’
45°
45°
Y*1’’
Y1 Y*1’’’ = Y*1’
Y1 + Y2 W
Total consumption (income) in Period 1
Figure 7.2a. Intertemporal consumption decisions for a consumer with neutral time preference.

3. W (1 + r)
Y2 + Y1 (1 + r) W
Total Consumption (Income) in Period 2 Y2
Y*2’’’
Y*2’
Y*2’’
l*b’’’
l*b’
l*b’’ lb
45°
45° O W Y1
Y*1’’
Y*1’’’
Y1 + Y2
Y*1’
Total Consumption (Income) in Period 1
Figure 7.2b. Intertemporal consumption decisions for a consumer with positive time preference.

4. Slope = - (1 + r) P2
Yi2
Total Consumption (Income) in Period 2 Y2
Y*2 Y2 l* l l
45° O
Yi1 Y1 Y1 Y*1 P1
Total Consumption (Income) in Period 1
Figure Investment and borrowing: The intertemporal decision of an individual with productive and market opportunities.

5. Current price of next-period consumption
SP1 S1
Current price of next-period consumption
P*Y1 = 1/(1 + r*)
YP1 Y1
Y*1
Next-period consumption
Figure 7.4a. Demand for next-period consumption, Y1, and supply from endowments and productive opportunities. D0
SP0 S0
Next-period price of current consumption
P*Y0 = 1 + r*
YP0
Y*0 Y0
Current Consumption
Figure 7.4b. Demand and supply of funds for current consumption.
Figure Market equilibrium in the two-period model.

6. current-period consumption Consumption, saving, and investment
Opportunity cost of
current-period consumption
Dl0
SD0
SS0
P*Y0 = 1 + r*
Yl0 =Y Y0
Consumption, saving, and investment
Figure 7.5a. Demand and supply of investment funds in a two-period model.
Df = MEI
SS = RTP
Interest rate r*
I, S
Saving, investment
Figure 7.5b. Saving, investment, and the interest rate in a perpetuity model.
Figure Equilibrium saving, investment, and interest rate.