At the consumer's optimum A)the budget constraint will have a slope of MU_x/P_x. B)it is still possible for the consumer to increase his consumption of both goods. C)the indifference curve will intersect the budget constraint at the midpoint of the budget constraint. D)the slope of the indifference curve is equal to the slope of the budget constraint.

Question

Quizplus · Accepted Answer

At the consumer's optimum, the consumer has allocated their budget in such a way that the last dollar spent on each good gives them the same marginal utility (i.e. MRS = Px/Py). This means that the slope of the indifference curve (MRS) is equal to the slope of the budget constraint (Px/Py). Therefore, the correct answer is D.

A is incorrect because it is a complicated formula that is not necessary to understand for this question.

B is incorrect because at the consumer's optimum, the consumer has already maximized their utility given their budget, so they can't increase their consumption of both goods any further without increasing their budget.

C is incorrect because the indifference curve can intersect the budget constraint at any point, not just the midpoint.

At the Consumer's Optimum