Which of the following is TRUE when a consumer is maximizing her utility?
A) She consumes where the budget constraint intersects the midpoint of her indifference curve.
B) She consumes halfway between the two intersections of her budget constraint and indifference curve.
C) She consumes at the point at which the slope of her indifference curve is zero.
D) She consumes at the point at which her budget constraint is tangent to her indifference curve.

Question

Quizplus · Accepted Answer

When a consumer is maximizing her utility, she consumes at the point at which her budget constraint is tangent to her indifference curve. This is known as the point of tangency and represents the highest level of satisfaction the consumer can achieve given her budget constraints. At this point, the slope of the indifference curve equals the slope of the budget constraint, indicating that the consumer is allocating her resources in the most efficient way possible. Option A is incorrect because the midpoint of the indifference curve is not necessarily the point of maximum utility. Option B is incorrect because there may be only one intersection between the budget constraint and indifference curve. Option C is incorrect because the slope of the indifference curve being zero does not necessarily imply that the consumer is maximizing her utility.

Which of the Following Is TRUE When a Consumer Is