Does tangency of indifference curve?

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 .

What is at the point of tangency between budget line and indifference curve?

a) The geometric meaning of tangency between an indifference curve and the budget line is that the indifference curve and the budget line are both at the same level at that point of tangency. At this point, the consumer budget (the price he can pay) is equal to the utility provided by a bundle.

What is the tangency point in economics?

The equilibrium point which will give most satisfaction to the consumer, and which the consumer can afford, is where the budget line is tangent to the highest indifference curve.

What is tangency solution?

choose a commodity bundle such that the MRS between any two goods is equal to the ratio of the goods’ prices (if MRS is strictly decreasing, there are no kinks and no corner solutions) This is called the tangency condition.

How do you calculate marginal rate of substitution?

Marginal Rate of Substitution Formula The Marginal Rate of Substitution of Good X for Good Y (MRSxy) = ∆Y/ ∆X (which is just the slope of the indifference curve).

Which of the following is an assumption of indifference curve analysis?

Assumptions of Indifference Curve Analysis: (1) The consumer acts rationally so as to maximise satisfaction. (2) There are two goods X and Y. (3) The consumer possesses complete information about the prices of the goods in the market. (5) The consumer’s tastes, habits and income remain the same throughout the analysis.

How do you calculate tangency condition?

spend all available income. choose a commodity bundle such that the MRS between any two goods is equal to the ratio of the goods’ prices (if MRS is strictly decreasing, there are no kinks and no corner solutions) This is called the tangency condition.

How do you find the tangency condition?

Does tangency of indifference curve with the budget line always result in optimal solution for the consumer utility Maximisation problem?

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.