Figure: Consumer Equilibrium III (Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III.Given the figure, which of the following statements is true?
A)At the point of utility maximization, the rate at which Kurt is willing to exchange one good for another is less than the rate at which the goods can be exchanged in the market.
B)An increase in the prices of tamales and placemats would allow Kurt to attain point B
C)At point E, Px = Py.
D)Point E is the point of utility maximization under current budget constraints.

Question

Figure: Consumer Equilibrium III   (Figure: Consumer Equilibrium III) Look at the figure Consumer Equilibrium III.Given the figure, which of the following statements is true?
A)At the point of utility maximization, the rate at which Kurt is willing to exchange one good for another is less than the rate at which the goods can be exchanged in the market. 
B)An increase in the prices of tamales and placemats would allow Kurt to attain point B 
C)At point E, Px = Py. 
D)Point E is the point of utility maximization under current budget constraints.

Quizplus · Accepted Answer

Point E is the point where the consumer is at utility maximization under their current budget constraint. At this point, the consumer has allocated their income in such a way that they have maximized their utility given the prices of the goods and their income. Therefore, option D is the correct statement. Option A is incorrect because it is not necessarily true that the rate at which Kurt is willing to exchange one good for another is less than the rate at which the goods can be exchanged in the market. Option B is incorrect because an increase in the prices of both goods would actually move the consumer away from point B. Option C is incorrect because point E does not necessarily have Px = Py.