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Indifference Curve Analysis Used on Pension System

Use indifference curve analysis to show how the Social Security pension system can reduce annual consumption for some workers who have a strong preference for current versus future consumption. What factors will influence the effect of the Social Security system on an individual's well-being and savings rate?

Solution Preview

Please refer to the attached file for the response.

INDIFFERENCE CURVE ANALYSIS GUIDE
Future consumption

FC1 A

FC2 B

PC2
PC1 U1 U2 U3 Present consumption

Indifference curves Depicting present and future consumptions

Discussions:
The above chart indicates three indifference curves U1, U2, and U3. Among the three curves (supposedly not a straight line but slightly concave upward), an employee who is an SS member would have highest ...

Solution Summary

The indifference curve analysis used on pension systems are examined.

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