When a consumer is purchasing the best combination of two goods, X and Y, subject to a budget constraint, we say that the consumer is at an optimal choice point. A graph of an optimal choice point shows that it occurs
A)along the highest indifference curve.
B)along the lowest budget constraint.
C)where the indifference curve is tangent to the budget constraint.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The optimal choice point occurs where the indifference curve representing the consumer's preferences is tangent to the budget constraint. This is because any other point on the budget constraint would either have a lower level of utility (if below the indifference curve) or be unaffordable (if above the indifference curve). Therefore, the consumer chooses the combination of X and Y that maximizes their utility given their budget constraint at the point of tangency.

When a Consumer Is Purchasing the Best Combination of Two