The combination of two goods at which total utility is maximized must lie somewhere on the consumer's budget line.

Question

Quizplus · Accepted Answer

This statement is true. The consumer's total utility will be maximized where the marginal utility per dollar spent on each good is equal. This point will be on the budget line, which represents all the combinations of the two goods that the consumer can afford. Any combination of goods outside the budget line will be beyond the consumer's budget constraint, while any combination inside the budget line will be inefficient as the consumer can consume more of at least one of the goods without sacrificing the other.

The Combination of Two Goods at Which Total Utility Is