Question

Given a budget constraint and an indifference curve, how do you determine what the optimal consumption bundle is?

Answer 1

A Budget constraint shows a consumer can purchase and an indifference curve(IC) shows the combination of two goods that gives equal satisfaction. So optimal consumption bundle that gives maximum utility is the point where the IC is tangent to the budget line.

The below grapgh shows a bundle of (7,2) & units of good x and 2 units of good y is the optimal consumption bundle, the point where IC curve is tangent to the budget line.