The utility maximizing consumption bundle for an individual can be found by locating _____.
A)the individual's bliss point
B)any point on an indifference curve touching the budget constraint
C)the highest point on an individual's indifference curve
D)the point tangent to an individual's budget constraint

Question

Quizplus · Accepted Answer

The utility maximizing consumption bundle for an individual can be found by locating the point tangent to an individual's budget constraint. This is because at this point, the slope of the indifference curve (representing the individual's marginal rate of substitution) is equal to the slope of the budget constraint (representing the relative prices of the goods). At this point, the individual is consuming the combination of goods that maximizes their utility within the constraints of their budget.

The Utility Maximizing Consumption Bundle for an Individual Can Be