-Refer to the above diagram. In this instance:
A) the BC line is diagonal because the amount spent on both goods is less or equal to income.
B) the consumer will find that every point along the I3 line is outside the budget constraint.
C) the consumer will find the highest utility where x and y just touch the I2 line.
D) all of the above and the consumer can choose any point on or below the budget constraint line BC.

Question

-Refer to the above diagram. In this instance:
A) the BC line is diagonal because the amount spent on both goods is less or equal to income. 
B) the consumer will find that every point along the I3 line is outside the budget constraint. 
C) the consumer will find the highest utility where x and y just touch the I2 line. 
D) all of the above and the consumer can choose any point on or below the budget constraint line BC.

Quizplus · Accepted Answer

The correct answer is D because it encompasses all the statements accurately. The BC line represents the budget constraint, indicating the combinations of goods that can be purchased with a given income. Points along the I3 line are outside the budget constraint, meaning they represent combinations of goods that are unaffordable with the consumer's income. The highest utility is achieved where the indifference curve (like I2) just touches the budget constraint, indicating the most preferred combination of goods within the budget. Additionally, the consumer can indeed choose any point on or below the budget constraint line BC, as these points represent affordable combinations of goods.

-Refer to the Above Diagram. in This Instance