Which one of the following is true at the best affordable choice of a consumer?
A)Marginal rate of substitution exceeds the slope of the budget line.
B)Marginal rate of substitution is less than the relative price of the good measured on the x-axis.
C)All income is spent.
D)The consumption choice is outside the budget line.
E)Other consumption points along the consumer's budget line lie on higher indifference curves.

Question

Quizplus · Accepted Answer

The best affordable choice of a consumer is where the budget line is tangent to the highest possible indifference curve, which represents the consumer's maximum level of satisfaction. This point is also known as the optimum or equilibrium point. At this point, the consumer spends all of their income (option C) and the marginal rate of substitution (MRS) is equal to the relative price of the goods measured on the x-axis. Therefore, options A and B are incorrect. Option D is not possible because the consumer cannot afford to consume outside the budget line. Option E may or may not be true depending on the shape and slope of the indifference curves and the budget line.

Which One of the Following Is True at the Best