Question

A consumer is maximizing their utility when a. The slope of the budget line is equal...

A consumer is maximizing their utility when

a. The slope of the budget line is equal to the slope of an indifference curve

b. The marginal rate of substitution between two goods is equal to their price ratio

c. The benefit of consuming one good is equal to the opportunity cost of giving up some of the other good

d. All of the above

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Answer #1

Ans- All of the above.

Explanation- The slope of the indifference curve equals the slope of the budget line that is, where the marginal rate of substitution equals the price ratio. It is the same point. These points are at equilibrium Quantity.

An Indifference curve is a curve which shows a combination of two goods to increase the consumer utility and buget line is the graphical representation showing possible combination of two goods that can be purchased by a consumer in his income. The point where these two are equal is the point where consumer maximises his utility. Also at this point marginal rate of substitution equals to price ratio of two goods.

The benefit of consuming one good is equal to the opportunity cost of giving up some of the other good. It means when consumer consumes good X and giving up good-Y so its benefit should be equal to its opportunity of giving up.

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