Geoscience Reference
In-Depth Information
Figure 27.
Discounting reduces
the value of distant goods.
Discounting is like visual
perspective, reducing the value
of goods and services in the
future.
Because dollars are less valuable in the future than today, they are
reduced or “discounted” in the future. We can use the analogy of visual
perspective to show the impact of the future on values. If you look down
a railroad track, distant objects look smaller (see Figure 27). This is the
way distant economic dollars should look as well because goods received
in the future have lower economic value than goods received today.
1
CONSUMPTION TODAY VERSUS CONSUMPTION TOMORROW
Discounting compares goods today with goods tomorrow. People
ultimately care about their living standards, or what economists call
“consumption of goods and services.” Consumption is the ultimate goal
of economic life, and it is the focus of my discussion.
Consumption refers to the vast array of goods and services that peo-
ple enjoy. You should think of it as a comprehensive concept. It includes
