Consumer equilibrium occurs where the budget line is ____ to the ____ possible indifference curve.
A) tangent; highest
B) equal; lowest
C) marginal; maximum
D) differential; highest

Question

Quizplus · Accepted Answer

Consumer equilibrium occurs where the budget line is tangent to the highest possible indifference curve. This means that the consumer has allocated their budget in such a way that the marginal rate of substitution (the rate at which they are willing to trade one good for another to maintain the same level of satisfaction) equals the price ratio (the relative prices of the two goods). This ensures that the consumer is getting the most satisfaction possible given their budget constraint.

Consumer Equilibrium Occurs Where the Budget Line Is ____ to the ____

Consumer Equilibrium Occurs Where the Budget Line Is to the