In the graph, where is the consumer's optimum? A budget line from 10 units of good 2 to 20 units of good 1, and three indifference curves IC₁, IC₂, IC₃, each convex to the origin and higher than the last. IC₂ just touches the budget line at E (10 units of good 1, 5 of good 2). IC₁ cuts the budget line twice; IC₃ lies entirely beyond it.

In the graph, where is the consumer's…

In the graph, where is the consumer's optimum?

Question 54

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In the graph, where is the consumer's optimum?

A budget line from 10 units of good 2 to 20 units of good 1, and three indifference curves IC₁, IC₂, IC₃, each convex to the origin and higher than the last. IC₂ just touches the budget line at E (10 units of good 1, 5 of good 2). IC₁ cuts the budget line twice; IC₃ lies entirely beyond it.

At E, on IC₂, with 10 units of good 1 and 5 of good 2Correct answerYour answerOn IC₃, because it gives the most satisfactionCorrect answerYour answerWhere IC₁ cuts the budget lineCorrect answerYour answerAt 20 units of good 1 and none of good 2Correct answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

IC₃ lies wholly beyond the budget line, so it cannot be reached.
IC₁ can be reached but is lower. IC₂ is the highest curve the line touches, at E (10, 5).

Concept: Finding the optimum on a graph
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsThe consumer's optimal choice

Practise this chapter →

Ten questions from Budget Line & Optimal Choice, at your own pace.

Practise this chapter →

Ten questions from Budget Line & Optimal Choice, at your own pace.

In the graph, where is the consumer's optimum?

Question 54

Explanation