Which of the following is true about the consumer's optimum consumption bundle? At the optimum ?
Correct answer: E. all of these answers are true
- A. the slope of the indifference curve equals the slope of the budget constraint
- B. the indifference curve is tangent to the budget constraint
- C. the relative prices of the two goods equals the marginal rate of substitution
- D. none of these answers are true
- E. all of these answers are true
Explanation
At an interior consumer optimum, the indifference curve is tangent to the budget line, so their slopes are equal and the marginal rate of substitution equals the relative price ratio. Therefore all three statements are equivalent descriptions of the optimum.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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