Practice question · Select all that apply
Which are true at the optimal consumption bundle?
Hints
- All the correct conditions are restatements of the same tangency.
- The optimum is by definition the best affordable point.
Show the answer
- A. The indifference curve is tangent to the budget line
- B.
- C.
Why
All three conditions are equivalent descriptions of the optimum. The consumer cannot reach a higher indifference curve, the tangent one is the highest affordable.
Practise Utility Maximization
The app has 8 more questions on this lesson, and keeps your place in the course. Business I is free to start.
More questions on Utility Maximization
- At the optimum the indifference curve is tangent to the budget line. What does tangency mean in words a…
- If income doubles from 100 to 200 while prices stay fixed, the budget line shifts outward. Estimate the new…
- Order the steps of utility maximisation.
- At the optimum, MUx/px = MUy/py. Why must the ratios be equal rather than the marginal utilities themselves?