=Part B: Suppose you are given y₁ > 0, y2 = 0, a₁ 0,r> 0. What would happen to theopportunity set if i) the first period endowment y₁ increases or ii) the market interest rate(r) decreases? You should answer this question by drawing a figure (you can use pen andpaper). Be sure to define the intercepts and slope of the opportunity set in each case.Please also answer this question in general terms.

A budget line, also known as a budget constraint, speaks to the combinations of products and…

Answered: opportunity set

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opportunity set

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

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Question

=
Part B: Suppose you are given y₁ > 0, y2 = 0, a₁ 0,r> 0. What would happen to the
opportunity set if i) the first period endowment y₁ increases or ii) the market interest rate
(r) decreases? You should answer this question by drawing a figure (you can use pen and
paper). Be sure to define the intercepts and slope of the opportunity set in each case.
Please also answer this question in general terms.

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Step 1: Define Budget Line

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Step 2: Explain the Change in Opportunity Set with Increase in First Period Endowment (y₁):

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Step 3: Explain the Change in Opportunity Set with Decrease in Market Interest Rate (r):

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