Illustrate the logic of the endowment effect using a kinked indifference curve. Let the angle be greater than 90°. Suppose that the prices change, so the slope of the budget line through the endowment changes. a. Use the diagram to explain why an individual whose endowment point is at the kink will only trade from the endowment point if the price change is substantial.b. What rules can we use to determine the optimal bundle? Can we use all the conditions that we derived for determining an interior solution?
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