When an exchange economy achieves a competitive equilibrium, the contract line and budget line:
A)intersect at tangent indifference curves.
B)intersect at intersecting tangent indifference curves.
C)are tangent to each other.
D)are tangent to the indifference curves.

Question

Quizplus · Accepted Answer

In a competitive equilibrium, the contract line and budget line intersect at tangent indifference curves. This means that the consumer is optimizing their utility given their budget constraint and the prices of goods in the market. Therefore, choice A is the correct answer.

When an Exchange Economy Achieves a Competitive Equilibrium, the Contract