the higher wages in the form of income while working the same number of hours. Yet another person, whose

substitution effect on leisure outweighed the income effect, might react to a higher wage by making a choice

like F, where the response to higher wages is to work more hours and earn much more income. To represent

these different preferences, you could easily draw the indifference curve Uh to be tangent to the new budget

constraint at D or F, rather than at B.

An Intertemporal Choice Example

Quentin has saved up $10,000. He is thinking about spending some or all of it on a vacation in the present, and

then will save the rest for another big vacation five years from now. Over those five years, he expects to earn a

total 80% rate of return. Figure B6 shows Quentin’s budget constraint and his indifference curves between

present consumption and future consumption. The highest level of utility that Quentin can achieve at his
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