Using Figure 4 , explain why the point of tangency of the budget line with an indifference curve is the consumer’s equilibrium position. Explain why any point where the budget line intersects an indifference curve is not equilibrium. Explain: “The consumer is in equilibrium where MRS = PB /PA.” FIGURE 4 The consumer's equilibrium position. Theconsumer's equilibrium position is represented by point X, where theblack budget line is tangent to indifference curve l3. The consumer buys4 units of A at $1.50 per unit and 6 of B at $1 per unit with a $12 moneyincome. Points Z and Y represent attainable combinations of A and Bbut yield less total utility, as is evidenced by the fact that they are onlower indifference curves. Point W would entail more utility than X, butit requires a greater income than the $12 represented by the budget line.121014Z26 8 10 12Quantity of BQuantity of A2.

A budget line (m) shows all possible combinations of two goods that can be bought with provided…

Answered: FIGURE 4 The consumer's equilibrium…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Using Figure 4 , explain why the point of tangency of the budget line with an indifference curve is the consumer’s equilibrium position. Explain why any point where the budget line intersects an indifference curve is not equilibrium. Explain: “The consumer is in equilibrium where MRS = P_B /P_A.”

FIGURE 4 The consumer's equilibrium position. The
consumer's equilibrium position is represented by point X, where the
black budget line is tangent to indifference curve l3. The consumer buys
4 units of A at $1.50 per unit and 6 of B at $1 per unit with a $12 money
income. Points Z and Y represent attainable combinations of A and B
but yield less total utility, as is evidenced by the fact that they are on
lower indifference curves. Point W would entail more utility than X, but
it requires a greater income than the $12 represented by the budget line.
12
10
14
Z
2
6 8 10 12
Quantity of B
Quantity of A
2.

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