Intertemporal substitution is the process of maximizing utility by allocating resources across time. For clarity, the standard analysis focuses on a two-period analysis of the present and the future.

**Model
Link:
Intertemporal
Substitution**

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Printable
PDF **Exercises**

This EconModel application studies three basic cases:

**A Simple Endowment** - The agent is given a certain amount of wealth in
each of the two periods.

**Saving for Retirement** - A production possibility frontier describes
the agent's options with respect to working in each of the two periods.
The agent simultaneously decides how much to work in each period and how much to
consume in each period.

**Investing in Education** - A production possibility frontier describes
how working less in the first period (the agent's youth) leads to a higher
income in the second period (the agent's middle age). Access to financial
markets leads students to invest more in education and to attain a higher
utility than if they could not borrow money.

**Classic
Economic Models**

**Microeconomics**

**Introduction**

Overview of Micro Models

**Supply and Demand**

Basic Supply and Demand

Who Pays a Sales Tax?

The Cobweb Model and

Inventory-Based Pricing

**Theory of the Firm**

Perfect Competition

Monopoly and

Monopolistic Competition

Price Discrimination

The Demand for Labor

**Theory of the Consumer**

Two Goods - Two Prices

Intertemporal Substitution

Labor Supply, Income Taxes,

and Transfer Payments

**Macroeconomics**

**Introduction**

Overview of Macro Models

**Models in Chronological Order**

The Classical Model

The Simple Keynesian Model

The Keynesian IS/LM Model

The Mundell-Fleming Model

Real Business Cycles

The IS/MP Model

The Solow Growth Model

**Financial Markets
**
Utility-Based Valuation of Risk

Mean-Variance Analysis:

Risk vs. Expected Return

Fixed Income Securities:

Mortgage/Bond Calculator

Growth Investments:

Present Value Calculator

**Resources**