When indifference curve analysis is used, a consumer optimum occurs at the point at which
A) the indifference curves intersect.
B) the indifference curve is tangent to the budget line.
C) total utility is maximum.
D) marginal utility/price ratio of all goods consumed is equal.

Question

Quizplus · Accepted Answer

The consumer optimum occurs where the indifference curve is tangent to the budget line because it represents the point at which the consumer is maximizing their utility given their budget constraint. At this point, the marginal utility per dollar spent is the same for all goods consumed, so the consumer is allocating their spending in the most efficient way possible. Therefore, option B is the correct statement. Options A, C, and D are not necessarily true and do not represent the specific conditions necessary for a consumer optimum.

When Indifference Curve Analysis Is Used, a Consumer Optimum Occurs