At the optimal consumption bundle, the marginal rate of substitution of leisure for consumption is equal to
A) the real wage and the budget line is tangent to an indifference curve.
B) minus the real wage and the budget line is tangent to the indifference curve.
C) the real wage and the budget line intersects the indifference curve.
D) minus the real wage and the budget line intersects the indifference curve.
E) the real wage and on the highest possible indifference curve.

Question

Quizplus · Accepted Answer

Optimal consumption bundle occurs where the consumer allocates their income in a way that the marginal utility per dollar spent is equal for all goods and services. At this point, the marginal rate of substitution of leisure for consumption is equal to the real wage and the budget line is tangent to an indifference curve. This means that the consumer is indifferent between consuming one more unit of leisure or consuming one more unit of goods and services, at the same cost, i.e., the real wage.

At the Optimal Consumption Bundle, the Marginal Rate of Substitution