A consumer is in equilibrium when the consumption point is on
A) the budget line.
B) an indifference curve.
C) the highest indifference curve that just touches the budget line.
D) none of the above.

Question

Quizplus · Accepted Answer

The consumer is in equilibrium when the consumption point is on the highest indifference curve that just touches the budget line. This is because at this point, the consumer is maximizing their utility (i.e. satisfaction) given their budget constraint. Any other point on a higher indifference curve would mean the consumer is not spending their money efficiently, while any point on a lower indifference curve would mean the consumer is not maximizing their utility.

A Consumer Is in Equilibrium When the Consumption Point Is