September 30, 2003
Saving for Retirement
We can explain saving for retirement for a worker by introducing a production possibility frontier that describes possible combinations of output in two periods.
Given access to financial markets, the worker will find the production point that reaches the best possible budget constraint.
Given access to financial markets, our worker produces at P and consumes at C. Without access to financial markets, the worker's would produce and consume at A, which is on a lower indifference curve.
This diagram illustrates a benefit of financial markets that helps explain why they exist.
Posted by bparke at September 30, 2003 05:05 PM