At an interior optimum, a consumer’s indifference curve must be tangent to her budget line for...

At an interior optimum, a consumer’s indifference curve must be tangent to her budget line for all preferences including perfect complements, substitutes and quasilinear preferences.

True

False

Solutions

Expert Solution

This statement is False.

If preferences are well behaved (e.g. convex preferences) and we have interior optimum, then indifference curves and budget lines will be tangent to each other at the optimal choice.

However, its not true for perfect substitute and perfect complementary preferences.

Rahul Sunny answered 1 year ago

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