Question

In: Economics

At the best affordable​ point, which statement is​ true? A. The highest affordable indifference curve has...

At the best affordable​ point, which statement is​ true?

A.

The highest affordable indifference curve has the same intercept as the budget line.

B.

The slope of the indifference curve equals the slope of the budget line.

C.

Some income is not spent.

D.

Other points on the same indifference curve are affordable but not preferred.

E.

The marginal rate of substitution between two goods equals their absolute price.

Solutions

Expert Solution

Ans: The slope of the indifference curve equals the slope of the budget line.

Explanation:

The best affordable point is where the indifference curve is tangent to the budget line. At this point slope of the indifference curve (i.e.MRS) is equal to the slope of the budge line. Other points on the same indifference curve may be preferred but are not affordable.

Thus, option [B] is correct answer.

Rahul Sunny answered 2 years ago
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