Where the indifference curve is tangent to the budget line?

The indifference curve is tangent to the budget line when the consumer is maximizing his or her utility.

What does it mean when the indifference curve is tangent to the budget constraint?

The only solution to this problem of choice is when the indifference curve is tangent to the budget line as that is when the consumer attains the same level of satisfaction or utility as the price he pays for the bundle. This indicates that the budget of the consumer is more than the utility available in the bundles.

How many indifference curves are tangent to a budget line?

one indifference curve
Since an infinite number of indifference curves exist, even if only a few of them are drawn on any given diagram, there will always exist one indifference curve that touches the budget line at a single point of tangency.

Why should the budget line be tangent to the indifference curve at the point of consumer equilibrium?

Budget line should be tangent to the indifference curve Consumer’s equilibrium is based on the assumption that the income of a consumer is constant and that he spends his entire income on purchasing two goods whose prices are given.

When an indifference curve is tangent to the budget line on the horizontal axis the consumption bundle is called a N ):?

When an indifference curve is tangent to the budget line on the horizontal axis, the consumption bundle is called a(n): corner solution.

What does the tangency point of budget line and indifference curve highlight?

The tangency between the indifference curve and the budget line indicates that the slope of the indifference curve or the Marginal Rate of Substitution(MRS) is the equal to the slope of the budget line or price ratio of the two goods in concern.

What does budget line indicate?

Budget line is a graphical representation of all possible combinations of two goods which can be purchased with given income and prices, such that the cost of each of these combinations is equal to the money income of the consumer.

When a tangent is formed in a budget line?

Thus, the marginal utility that Lilly would gain from, say, increasing her consumption of books from two to three must be equal to the marginal utility that she would lose if her consumption of doughnuts was cut from 120 to 84—so that her overall utility remains unchanged between points A and B.

Why is budget line important in indifference curve?

A budget line shows combinations of two goods a consumer is able to consume, given a budget constraint. An indifference curve shows combinations of two goods that yield equal satisfaction. To maximize utility, a consumer chooses a combination of two goods at which an indifference curve is tangent to the budget line.

When price line is tangent to the indifference curve the consumer is said to be in equilibrium state True or false?

The consumer will be in equilibrium where there is tangency between price line and indifference curve because at this point.

When indifference curves are straight lines?

The degree of convexity of an indifference curve depends upon the rate of fall in the marginal rate of substitution of X for Y. As stated above, when two goods are perfect substitutes of each other, the indifference curve is a straight line on which marginal rate of substitution remains constant.

Does tangency of indifference curve with the budget line always results in optimal solution for the consumer utility maximization problem discuss?

The tangency point is the most optimal solution for the consumers as at this point the marginal satisfaction obtained by the consumer by purchasing a particular bundle of goods is equal to the marginal cost that he or she is paying to purchase that particular bundle.