When the indifference curve is tangent to the budget constraint,
A)a consumer cannot be made better off without an increase in her income or a price decrease in one of the goods she consumes.
B)the consumer is likely to be at a sub-optimal level of consumption.
C)income is at its optimum for a consumer.
D)indifference curves are likely to intersect.

Question

Quizplus · Accepted Answer

When the indifference curve is tangent to the budget constraint, it means that the consumer is consuming the bundle of goods that maximizes their utility given their income and the market prices of the goods. Therefore, any change in the consumer's budget or the prices of the goods would result in a lower level of utility. Hence, a consumer cannot be made better off without an increase in their income or a price decrease in one of the goods they consume.

When the Indifference Curve Is Tangent to the Budget Constraint