ABSTRACT
In general, individuals are impatient and prefer to receive goods and services today rather than at some point in the future. To induce those individuals to forego consumption today in exchange for consumption tomorrow they have to be compensated. For instance, the individual might require $1 in future consumption to give up $0.91 today. The more impatient the individual is, the less they are willing to give up today for an extra dollar in the future. On the producer’s side of the market, goods and services can be produced today or those resources can be saved and used tomorrow. As more resources are saved for tomorrow, the opportunity cost of using those resources in terms of foregone current production tends to increase. Another way of thinking about it is that as more resources are saved for tomorrow, the return on investment goes down. Therefore, producers have to decide whether to produce today or to invest in capital to produce goods and services tomorrow.
