The following figure shows the intertemporal model of household consumption and production. The household's initial endowment is given by point on the figure below. Assume that the household much prefers the consumption in time one (1) to the consumption in time zero (Vo) and that the market interest rate is 3%. a. Draw an appropriate household intertemporal utility indifference curve, then find the saving and consumption optimum as well as production optimum. (4 points) b. Now assume that the market interest rate decreases to 2%. What is the slope of the new budget line? Draw the new household budget line and find new saving and consumption optimum as well as production optimum. (5 points) c. Now, consumption in time zero (V) creates a negative externality, i.e. pollution of resources - air, water and land. The government therefore has imposed a tax on consumption in time zero (V). How will the tax on Vuaffect the saving, consumption and production optimum relative to your answer in part a)? Illustrate your answer using a figure. (6 points) Consumption in Time One fratertemperat Production ARCTIC Household Budget Linu 0 Vindow Consumption in Time Zero (VO) The following figure shows the intertemporal model of household consumption and production. The household's initial endowment is given by point on the figure below. Assume that the household much prefers the consumption in time one (1) to the consumption in time zero (Vo) and that the market interest rate is 3%. a. Draw an appropriate household intertemporal utility indifference curve, then find the saving and consumption optimum as well as production optimum. (4 points) b. Now assume that the market interest rate decreases to 2%. What is the slope of the new budget line? Draw the new household budget line and find new saving and consumption optimum as well as production optimum. (5 points) c. Now, consumption in time zero (V) creates a negative externality, i.e. pollution of resources - air, water and land. The government therefore has imposed a tax on consumption in time zero (V). How will the tax on Vuaffect the saving, consumption and production optimum relative to your answer in part a)? Illustrate your answer using a figure. (6 points) Consumption in Time One fratertemperat Production ARCTIC Household Budget Linu 0 Vindow Consumption in Time Zero (VO)