Consumer equilibrium occurs at:
A) any point of intersection between the budget line and an indifference curve.
B) a point of tangency between the budget line and an indifference curve.
C) the point where the slope of the indifference curve equals the ratio of the quantities.
D) a point where the budget line cuts the curve from below.

Question

Quizplus · Accepted Answer

Consumer equilibrium occurs at the point where the budget line is tangent to an indifference curve. At this point, the marginal rate of substitution (the slope of the indifference curve) equals the ratio of prices of the two goods. This is the point where the consumer obtains the highest level of satisfaction given their budget constraint. Points A, C, and D do not necessarily represent consumer equilibrium.

Consumer Equilibrium Occurs At