The consumer is in equilibrium at a point where the budget line _________.

is above the indifference curve

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is below the indifference curve

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is tangent to the indifference curve

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cuts the indifference curve

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Solution

The correct option is C is tangent to the indifference curve
The equilibrium is when the ratio of the price of goods is equal to the marginal rate of substitution. The ratio of price of goods comes from the budget line whereas the marginal rate of substitution is derived from the point of tangency on the indifference curve.

Suggest Corrections

A.	Various combinations of two commodities that a consumer can purchase	1.	Indifference map
B.	Various combinations of two commodities that give consumer equal satisfaction	2.	Indifference curve
C.	A set of indifference curves	3.	Budget line
D.	Point of agency of a budget line and an indifference curve	4.	Consumer's equilibrium