At a boundary choice,
A) The tangency condition always applies
B) There are affordable bundles containing a little bit more of that good and a little bit less of it
C) The consumer's best choice lies below the budget line
D) There are no affordable bundles that contain either a little bit more or a little bit less of some good

Question

Quizplus · Accepted Answer

At a boundary choice, the budget line is tangential to the indifference curve, which means that the slope of the budget line equals the slope of the indifference curve. This also means that the marginal rate of substitution (MRS) equals the price ratio for the goods. If the MRS is not equal to the price ratio, the consumer could improve their utility by adjusting their consumption bundle. However, since the tangency condition holds at a boundary choice, the consumer cannot improve their utility by adjusting their consumption bundle. Therefore, the best choice is to choose the affordable bundle that provides the most utility, which is a bundle that contains a little bit more of one good and a little bit less of another good.  This is because the budget constraint limits the ability to consume more of one good unless there is a corresponding reduction in the consumption of another good.

At a Boundary Choice