If a consumer consumes two goods, X and Y, and has indifference curves that are bowed inward, the consumer's optional choice occurs when
A)he consumes the maximum affordable quantity of good X.
B)he consumes the maximum affordable quantity of good Y.
C)his indifference curve is tangent to his budget constraint.
D)his indifference curve lies entirely above his budget constraint.

Question

Quizplus · Accepted Answer

The consumer's optimal choice occurs when their indifference curve is tangent to their budget constraint. This is where the consumer is getting the highest level of satisfaction possible given their budget constraints. If the indifference curve is not tangent to the budget constraint, then the consumer can either increase their satisfaction by consuming more goods, which is not possible due to the budget, or they can decrease their satisfaction by consuming less goods, which is not optimal. Therefore, the optimal choice occurs at the point where the indifference curve is tangent to the budget constraint.

If a Consumer Consumes Two Goods, X and Y, and Has