§1. Introduction

Graphic illustrations of the solutions of two economic problems incident to the attainment of economic equilibrium, assuming incomes fixed, have been given in Chapter X. One was an individual problem, the other a market problem. We found their solutions respectively to be:

(1) The income situation Q1 which Individual 1 will reach from his original income position P1 by borrowing or lending will be found where his borrower-lender motive is balanced, i.e., where one of his Willingness lines is tangent to the Market line M; and

(2) The rate of interest, or divergency slope of the Market line from 45° will be such that the center of gravity of all Q's, as above found, will coincide with that of all the P's.

In this chapter the point P, which was assumed to be arbitrarily imposed upon the individual, is replaced by a series of optional points among which he may choose. If this group of points is shrunk into a single point, the analysis of this chapter becomes identical with that of Chapter X. In other words, Chapter X represents a special case, while this chapter represents the general problem.

In Chart 35 are represented various possible points supposed to indicate the various income situations available Edition: current; Page: [264] to Individual 1 aside from any further shifts through borrowing or lending. Instead of having no choice but a fixed position as in Chapter X, he now has the opportunity to choose any one of many income positions, but will actually confine his choice to those positions represented upon the boundary line O1' O1IV. This may be called the Investment Opportunity line or briefly the O line for Individual 1. Every individual, of course, has his own O line.