Question

At the optimum point of consumer, what does the budget line do to indifference curve?

• A. Cuts
• B. Touches
• C. Cuts two times
• D. None of these

Hint:

At the optimum point, the budget line touches the indifference curve, showing the consumer's best allocation of resources.

Answer 1

The Correct Option is B

Step 1: Understanding the concept of optimum point.
The optimum point of a consumer is where they achieve the highest satisfaction with the available resources, represented by the tangency point between the budget line and an indifference curve. This point represents the most efficient allocation of resources.

Step 2: Analyzing the behavior of the budget line.
At the optimum point, the budget line is tangent to the highest indifference curve. This means that the budget line touches the indifference curve at exactly one point, indicating that the consumer has reached the best combination of goods they can afford.

Step 3: Analysis of options.
(A) Cuts: This option suggests that the budget line intersects the indifference curve at more than one point, which is not correct at the optimum point.
(B) Touches: Correct. At the optimum point, the budget line just touches the indifference curve without cutting it.
(C) Cuts two times: This option would indicate multiple intersections, which is not true for the optimum point.
(D) None of these: Incorrect, as the correct behavior is the budget line touching the indifference curve.

Step 4: Conclusion.
The budget line touches the indifference curve at the optimum point, meaning that the correct answer is (B) Touches.