The point where the highest attainable indifference curve and the budget constraint are tangent is called:
A) equilibrium
B) maximum
C) efficiency point
D) optimum

Question

Quizplus · Accepted Answer

The point where the highest attainable indifference curve and the budget constraint are tangent is called the optimum. At this point, the consumer is maximizing their utility subject to their budget constraint, making it the best choice. Choice A, equilibrium, simply refers to a state of balance between supply and demand and does not necessarily imply optimization. Choice B, maximum, does not take into account the budget constraint and assumes that the consumer can spend an unlimited amount of money to obtain the maximum level of satisfaction. Choice C, efficiency point, is not as precise as the optimum since it does not necessarily refer to the point of maximum utility but rather the point at which resources are used most effectively.

The Point Where the Highest Attainable Indifference Curve and the Budget