The consumer's optimal consumption of X and Y occurs where the consumer:
A) reaches the highest indifference curve that intersects the budget constraint.
B) reaches the highest budget constraint that is tangent to the indifference curve.
C) reaches the lowest indifference curve that intersects the budget constraint at any point.
D) reaches the highest indifference curve that is just tangent to the budget constraint.
E) is satiated with X and Y.

Question

Quizplus · Accepted Answer

The consumer's optimal consumption of X and Y occurs where the highest indifference curve that is just tangent to the budget constraint. At this point, the consumer is maximizing their utility given their budget constraint. Any point inside the budget constraint will result in a lower utility, and any point outside the budget constraint will be unaffordable. Therefore, choice D is the correct answer.

The Consumer's Optimal Consumption of X and Y Occurs Where