Explain the relationship between the budget constraint and indifference curve at a consumer's optimum
Because the budget constraint is tangent to the indifference curve at a consumer's optimum, the slope of the budget constraint (relative market prices) and the slope of the indifference curve (the marginal rate of substitution) are equal at the optimal consumption point and only at that point.
You might also like to view...
Goods that are income elastic are often referred to as luxury goods
Indicate whether the statement is true or false
A market system (market economy) depends on the market to
a. find the most efficient way of using resources. b. determine how large the budget deficit should be. c. decide how much government regulation there should be. d. provide minimum incomes for everyone. e. All of the above are correct.
If women are not allowed to vote or inherit wealth but men are, this is an example of
A. A gender trap. B. An inequality trap. C. The liquidity trap. D. The disadvantaged trap.
Figure 7.3
The price of Video Game rentals is $2 For MUA/$ and $4 for MUB/$.The price of Energy Drinks is $2.Budget = $28.Refer to Figure 7.3. If the price of video game rentals is $4, the utility maximizing combination is ________ video game rentals and ________ energy drinks.
A. 1; 4 B. 2; 10 C. 10; 4 D. 11; 10