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In the two-period consumption model, a consumer’s preferences and optimum levels of consumption are analyzed using the intertemporal choice framework, which considers consumption and savings decisions over two time periods—typically referred to as the present period (period 1) and the future period (period 2). The model assumes that a rational consumer seeks to maximize utility derived from consumption in both periods, subject to an intertemporal budget constraint determined by income and interest rates. Consumer preferences in this model are represented by a utility function (U(C_1, C_2)), where (C_1) and (C_2) denote consumption in period 1 and period 2, respectively. The utility function is assumed to be increasing in both arguments, reflecting that more consumption in either period provides higher satisfaction. It is also typically concave in each argument, indicating diminishing marginal utility of consumption. This means that as consumption in a particular period increases, the additional satisfaction gained from an extra unit of consumption decreases. To visualize consumer preferences, we use indifference curves in the (C_1)-(C_2) space. Each curve represents combinations of current and future consumption that provide ____ __________ ________ _____ _______ _________ _______.
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