Which is the optimum or most preferred bundle?

The one where the budget line is tangent to the indifference curve

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The one below the budget line

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The one where the budget line intersects the indifference curve

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None of the above

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Solution

The correct option is B The one where the budget line is tangent to the indifference curve
The point of optimal efficiency is where the budget line is tangent to the indifference curve. This shows the consumers ability to purchase a good is at its most efficient point with current prices of the market and the consumers given income.

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Similar questions

Q. Given the budget line a consumer will try to opt for _______ level of indifference curve.

Identify which of the following is not true for the Indifference Curves. Give valid reasons for choice of your answer:

a. Lower indifference curve represents lower level of satisfaction.

b. Two regular convex to origin indifference curves can intersect each other.

c. Indifference curve must be convex to origin at the point of tangency with the budget line at the consumer’s equilibrium.

d. Indifference curves are drawn under the ordinal approach to consumer equilibrium.

A consumer has total money income of Rs 250 to be spent on two goods X and Y with prices of Rs 25 and Rs 10 per unit respectively. On the basis of the information given, answer the following questions:

a. Give the equation of the budget line for the consumer.

b. What is the value of slope of the budget line?

c. How many units can the consumer buy if he is to spend all his money income on good X?

d. How does the budget line change if there is a fall in price of good Y?

Q. Match the following:

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

Q. Where the budget line is tangent to an IC, ________.

a) A consumer, Mr Aman is in state of equilibrium consuming two goods X and Y, with given prices Px and Py . What will happen if $\frac{M U x}{P x} > \frac{M U y}{P y}$ ?

b) Identify which of the following is not true for the Indifference Curves theory. Give valid reasons for choice of your answer:

a. Lower indifference curve represents lower level of satisfaction.
b. Two indifference curves can intersect each other.
c. Indifference curve must be convex to origin at the point of tangency with the budget line at the consumer’s equilibrium.
d. Indifference curves are drawn under the ordinal approach to consumer equilibrium.

A consumer has total money income of Rs 500 to be spent on two goods X and Y with prices of Rs 50 and Rs 10 per unit respectively. On the basis of the given information, answer the following questions:
a. Give the equation of the budget line for the consumer.
b. What is the value of slope of the budget line?
c. How many units can the consumer buy if he is to spend all his money income on good X?
d. How does the budget line change if there is a 50% fall in price of good Y?

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