Figure 8.4

-Refer to Figure 8.4.The consumer can afford consumption bundles

Question

Figure 8.4
 
-Refer to Figure 8.4.The consumer can afford consumption bundles

Quizplus · Accepted Answer

The consumer's budget line is represented by line RS in Figure 8.4. The highest affordable level of utility is reached at point v, where the budget line just touches the highest possible indifference curve. Therefore, the rational choice for the consumer is to purchase bundle v, which includes both X and Y goods. Bundles t and u, although affordable, provide less utility than bundle v. Bundle r, on the other hand, is not on the budget line and is therefore not affordable for the consumer. Hence, the best choices are bundles v, t, and u, which have the highest level of utility for the given budget.

Figure 8.4 -Refer to Figure 8.4.The Consumer Can Afford Consumption Bundles