In an indifference curve/budget line diagram, a consumer's equilibrium consumption combination will occur
A) inside the budget line.
B) outside the budget line.
C) on the budget line.
D) at the origin.

Question

Quizplus · Accepted Answer

The consumer's equilibrium consumption combination occurs where the budget line and the highest attainable indifference curve intersect. This is because the consumer is maximizing satisfaction while staying within their budget constraint. Therefore, the equilibrium consumption combination must occur on the budget line. Option A is incorrect because a point inside the budget line means the consumer is not spending all their income and could still increase their satisfaction by buying more. Option B is incorrect because a point outside the budget line is not attainable given the consumer's income level. Option D is incorrect because the origin represents consuming nothing, which is not an optimal consumption choice.

In an Indifference Curve/budget Line Diagram, a Consumer's Equilibrium Consumption