In the graph, why will the consumer not choose a point where IC₁ cuts the budget line? 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, why will the consumer not…

In the graph, why will the consumer not choose a point where IC₁ cuts the budget line?

Question 55

MediumOriginal question

In the graph, why will the consumer not choose a point where IC₁ cuts the budget line?

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.

Those points cost more than his incomeCorrect answerYour answerThose points give more satisfaction than ECorrect answerYour answerIC₁ is not convexCorrect answerYour answerMoving along the budget line towards E puts him on a higher indifference curve at the same costCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

Where IC₁ cuts the line, the bundles are affordable, but the line continues inside better curves.
Spending the same income, he can reach IC₂ at E, so those points are not optimal.

Concept: Why a crossing point is not optimal
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, why will the consumer not choose a point where IC₁ cuts the budget line?

Question 55

Explanation