Figure: Consumer Equilibrium I The figure shows three of Owen's indifference curves for pizza and soda per week.Owen has $180 per month to spend on the two goods, and the price of a pizza is $20 and the price of a soda is
$1)50. (Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I.If Owen consumes 1.5 pizzas and 100 sodas, which of the following is true?
A)Owen is maximizing his total utility, given his budget line.
B)Owen should consume more pizza and less soda to maximize his total utility, given his budget line.
C)Owen should consume less pizza and more soda to maximize his total utility, given his budget line.
D)Owen should consume more pizza and more soda to maximize his total utility, given his budget line.

Question

Figure: Consumer Equilibrium I The figure shows three of Owen's indifference curves for pizza and soda per week.Owen has $180 per month to spend on the two goods, and the price of a pizza is $20 and the price of a soda is
$1)50.  (Figure: Consumer Equilibrium I) Look at the figure Consumer Equilibrium I.If Owen consumes 1.5 pizzas and 100 sodas, which of the following is true?
A)Owen is maximizing his total utility, given his budget line. 
B)Owen should consume more pizza and less soda to maximize his total utility, given his budget line. 
C)Owen should consume less pizza and more soda to maximize his total utility, given his budget line. 
D)Owen should consume more pizza and more soda to maximize his total utility, given his budget line.

Quizplus · Accepted Answer

From the figure, we can see that the budget line is tangent to the highest indifference curve  at a point where Owen consumes less pizza and more soda than he currently is. This means that he can increase his total utility by consuming more soda and less pizza. Therefore, option B is correct. Alternatively, since the budget line is not tangent to the highest indifference curve at the current consumption bundle of 1.5 pizzas and 100 sodas, option A is incorrect. Options C and D can also be eliminated because they suggest consuming more of both goods, which is not possible given the budget constraint.

Figure: Consumer Equilibrium I the Figure Shows Three of Owen's