📚 Learning Guide
Optimal Purchase Combinations
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If a consumer is at equilibrium while consuming two goods, X and Y, where an indifference curve intersects their budget line, which of the following conditions must hold true for maximizing utility?

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Learning Path

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Choose AnswerChoose the Best Answer

A

The marginal rate of substitution between X and Y equals the ratio of their prices.

B

The consumer spends all of their income on good X only.

C

Good Y is always preferred over good X regardless of the price.

D

The consumer should buy more of good Y if its price decreases.

Understanding the Answer

Let's break down why this is correct

At equilibrium the consumer chooses a bundle where the willingness to trade one good for another equals the market trade needed. Other options are incorrect because The idea that a person will spend all money on one good comes from the mistake of thinking only one item gives maximum pleasure; Assuming one good is always better is a common misunderstanding that ignores price and how much one values each item.

Key Concepts

Consumer Equilibrium
Indifference Curves
Topic

Optimal Purchase Combinations

Difficulty

medium level question

Cognitive Level

understand

Deep Dive: Optimal Purchase Combinations

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Definition
Definition

Optimal purchase combinations refer to the most efficient mix of goods a consumer can buy based on marginal utility per dollar. By comparing the marginal utility of different goods to their prices, consumers aim to maximize total utility within budget constraints. Understanding optimal purchase combinations helps individuals make rational consumption choices.

Topic Definition

Optimal purchase combinations refer to the most efficient mix of goods a consumer can buy based on marginal utility per dollar. By comparing the marginal utility of different goods to their prices, consumers aim to maximize total utility within budget constraints. Understanding optimal purchase combinations helps individuals make rational consumption choices.

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