Asked by Morgan Brunk on Jul 30, 2024
Verified
Graphically, the consumer maximizes total utility where the budget line is tangent to an indifference curve.
Budget Line
A graphical representation showing all possible combinations of two goods that can be purchased with a given budget at set prices.
Indifference Curve
A graph representing different bundles of goods among which a consumer is indifferent, showing preferences for various combinations of two products.
Total Utility
Total utility is the total satisfaction or benefit that a consumer derives from consuming a specific quantity of a good or service.
- Understand the methods through which consumers achieve maximum satisfaction given their budget limitations.
- Comprehend the principle of indifference curves and their role in depicting consumer choices.
Verified Answer
ZK
Zybrea KnightAug 02, 2024
Final Answer :
True
Explanation :
At the point of tangency between the budget line and an indifference curve, the slope of the budget line (representing the price ratio of two goods) equals the slope of the indifference curve (representing the marginal rate of substitution between the two goods), indicating that the consumer has reached the highest possible utility given their budget constraint.
Learning Objectives
- Understand the methods through which consumers achieve maximum satisfaction given their budget limitations.
- Comprehend the principle of indifference curves and their role in depicting consumer choices.