Question

The consumer will maximize his satisfaction and to be in equilibrium at a point where ____________.

• A. price line or budget line is tangent to an IC
• B. price line crosses an IC
• C. price line does not touch the IC
• D. none of the above

Answer 1

The correct option is A price line or budget line is tangent to an IC

The consumer achieves equilibrium at a point which lies on the highest possible indifference curve and which fits the budget of the consumer given the prices of both the commodities. Therefore, such point is only possible when the budget line is tangent to the indifference curve.