A utility-maximising individual will consume a bundle of goods that is:
A)on the budget constraint
B)below the budget constraint
C)either on or below the budget constraint
D)above the budget constraint

Question

Quizplus · Accepted Answer

A utility-maximising individual will allocate their budget in a way that maximises their satisfaction, subject to their budget constraint. This means they will spend all of their budget and consume a bundle of goods that lies exactly on the budget constraint, where the marginal rate of substitution between the two goods equals the price ratio. Any consumption bundle below the budget constraint would mean that the individual is not fully utilising their budget and could achieve higher utility by purchasing more goods, while any consumption bundle above the budget constraint would be unaffordable. Therefore, the only rational choice is to consume a bundle of goods on the budget constraint.

A Utility-Maximising Individual Will Consume a Bundle of Goods That