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hester Exam (Chapters 1-7) Saved A 53 NED B 1 In the diagram, Multiple Choice

the diagram, Multiple Choice the consumer is indifferent between points A and B, but neither point maximizes his utility. the

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ANSWER : a. the consumer is indifferent between point A and B, but neither point maximise his utility.

Points A and B lies on the same indifference curve I1, indifference curve represents various combinations of goods that provide same level of satisfaction to the consumer. So, A and B will provide same level of satisfaction to the consumer and consumer will be indifferent between both points.

The consumer's utility is maximized when the slope of the budget line is equal to slope of the indifference curve, which means that where indifference curve is tangent to the budget line. This happens when the budget line is tangent to the indifference curve I2.

So, none of the points A and B maximises consumer's utility.

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