Ophelia Says, "If I Could Lend Money at the Rates

question 8

Essay

Ophelia says, "If I could lend money at the rates I must pay to borrow, I would.And if I could borrow money at the rates I receive when I lend, I would again.But forsooth, although I spend, I neither borrow nor lend." Contrary to common belief, Ophelia is entirely rational.Draw a diagram to show how Ophelia's remarks can be consistent with rational behavior and smooth convex preferences if she pays a different interest rate when she borrows than she gets when she lends.Explain what happens in words.

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Definitions:

Registered Trademark

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License

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is a legal contract in which the patent holder grants permission to another party to use, manufacture, sell, or distribute the patented invention under defined terms and conditions.

Scuba Diving

The activity of underwater diving where the diver uses a self-contained underwater breathing apparatus (SCUBA) to breathe underwater.