A consumer maximizes utility, given her income, when she chooses a consumption bundle whose:
A) marginal utility of each good is equal.
B) highest indifference curve is tangent to the budget line.
C) marginal rate of substitution is highest.
D) marginal utility of each good is highest.

Question

Quizplus · Accepted Answer

The highest indifference curve is tangent to the budget line when the marginal rate of substitution is equal to the price ratio, which maximizes utility given the income constraint.

A Consumer Maximizes Utility, Given Her Income, When She Chooses