Does tangency of indifference curve with the budget line always result in optimal solution for the consumer utility maximisation problem? Discuss.
Answers
Answer:
1GC0c0Gt-u5-I:g++NM)lK(KkkK)kJjKK;GU;I8yBauTgeia9I(¢
Answer:
Explanation: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 .
Every item has a price tag. Consumers must choose among alternative goods with their limited money incomes. The Utility Maximization rule states: consumers decide to allocate their money incomes so that the last dollar spent on each product purchased yields the same amount of extra marginal utility .
The indifference curves must slope down from left to right. This means that an indifference curve is negatively sloped. It slopes downward because as the consumer increases the consumption of X commodity, he has to give up certain units of Y commodity in order to maintain the same level of satisfaction.
There are four important properties of indifference curves that describe most of them: (1) Indifference curves are downward sloping, (2) higher indifference curves are preferred to lower ones, (3) indifference curves cannot intersect, and (4) indifference curves are convex (i.e. bowed inward).