Billy is maximizing utility subject to his limited income. As a result, which of the following statements is TRUE? A) The slope of the indifference curve is twice the slope of the budget constraint. B) The indifference curve intersects the budget constraint at precisely two points. C) The budget constraint is tangent to the indifference curve. D) The MRS_XY = P_XP_Y.

Question

Quizplus · Accepted Answer

When maximizing utility subject to limited income, the budget constraint is tangent to the highest possible indifference curve. This creates the highest possible level of utility given the constraints of income and price. Therefore, choice C is true. Choices A and B are not necessarily true for all situations, and choice D is irrelevant.

Billy Is Maximizing Utility Subject to His Limited Income