A consumer is maximizing utility when
A) the slope of the budget constraint has reached -1.
B) diminishing marginal utility has set in.
C) the slope of the budget constraint equals the marginal rate of substitution.
D) the consumer has spent all of his income.

Question

Quizplus · Accepted Answer

The slope of the budget constraint represents the opportunity cost of one good in terms of another, while the marginal rate of substitution represents the willingness to trade one good for another. When these two slopes are equal, the consumer is able to maximize utility by allocating their budget in a way that optimizes the ratio of the marginal utilities of each good.

A Consumer Is Maximizing Utility When