If Rachel is at her best affordable point, then ________.
A) her marginal rate of substitution equals 1
B) her marginal rate of substitution is maximized
C) the relative price of the goods she buys equals the marginal rate of substitution
D) she is indifferent among other points on her budget line

Question

Quizplus · Accepted Answer

The best affordable point for Rachel is where the budget line is tangent to the highest indifference curve she can reach. This is where the relative price of the goods she buys equals the marginal rate of substitution. Therefore, option C is the correct choice. Option A is incorrect because the marginal rate of substitution can be equal to 1 at multiple points on the budget line. Option B is incorrect because while the marginal rate of substitution is maximized at the best affordable point, this does not necessarily mean she has reached it. Option D is incorrect because if Rachel is at her best affordable point, she cannot be indifferent among other points on her budget line.

If Rachel Is at Her Best Affordable Point, Then ________