In terms of indifference curves, the equilibrium-purchase combination is determined by the:
A) intersection of a budget line and an indifference curve.
B) tangency of a budget line and an indifference curve.
C) tangency of a price consumption curve and an income consumption curve.
D) intersection of an income consumption curve and a price consumption curve.

Question

Quizplus · Accepted Answer

The equilibrium-purchase combination occurs where the consumer maximizes utility subject to the budget constraint. This is achieved at the point where the budget line is tangent to the highest attainable indifference curve. Therefore, the correct choice is (B), tangency of a budget line and an indifference curve.

In Terms of Indifference Curves, the Equilibrium-Purchase Combination Is Determined