A consumer's utility-maximizing combination of goods is given by the bundle that corresponds to the point on
A)the indifference curve that intersects the horizontal axis.
B)the indifference curve that intersects the vertical axis.
C)an indifference curve that is tangent to the budget constraint.
D)the budget constraint where it intersects one of the axes.

Question

Quizplus · Accepted Answer

The consumer's utility-maximizing combination of goods will occur where the indifference curve representing the same level of utility is tangent (just touching) to the budget constraint. This occurs at the point where the marginal rate of substitution (the rate at which the consumer is willing to exchange one good for another) is equal to the price ratio of the two goods. Therefore, option C is the correct answer.

A Consumer's Utility-Maximizing Combination of Goods Is Given by the Bundle