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Refer to the above diagram. In this instance:   Question 5 options:   the BC line is diagonal because the amount spent on both goods is less or equal to income.    the consumer will find that every point along the I3 line is outside the budget constraint.    the consumer will find the highest utility where x and y just touch the I2 line.    the consumer will find the highest utility where x and y just touch the I2 line.

Refer to the above diagram. In this instance:   Question 5 options:   the BC line is diagonal because the amount spent on both goods is less or equal to income.    the consumer will find that every point along the I3 line is outside the budget constraint.    the consumer will find the highest utility where x and y just touch the I2 line.    the consumer will find the highest utility where x and y just touch the I2 line.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Refer to the above diagram. In this instance:

 
Question 5 options:
 

the BC line is diagonal because the amount spent on both goods is less or equal to income.
 

 the consumer will find that every point along the I3 line is outside the budget constraint. 
 

the consumer will find the highest utility where x and y just touch the I2 line.
 

 the consumer will find the highest utility where x and y just touch the I2 line.
 
The diagram is a graphical representation of a consumer's choice involving two goods, labeled as Good X and Good Y. The graph includes the following key elements: 1. **Axes**: - The horizontal axis represents the quantity of Good Y. - The vertical axis represents the quantity of Good X. 2. **Indifference Curves (I1, I2, I3)**: - Three curved lines labeled I1, I2, and I3 represent different indifference curves. - An indifference curve shows combinations of two goods between which a consumer is indifferent, meaning they derive the same level of satisfaction or utility. - I3 is above I2, and I2 is above I1, indicating higher levels of utility as you move to higher curves. 3. **Budget Constraint (BC)**: - A straight line labeled BC depicts the budget constraint. - It represents all possible combinations of Good X and Good Y that the consumer can purchase given their budget and the prices of the goods. - The point where the budget line touches the highest achievable indifference curve represents the optimal choice for the consumer. 4. **Point (X*, Y*)**: - The intersection of the budget line (BC) with the indifference curve I2 at point (X*, Y*) marks the optimal choice, where the consumer gets the maximum utility within their budget. The graph illustrates how a consumer allocates their income between two goods to achieve maximum satisfaction, given their budget constraints.
Transcribed Image Text:The diagram is a graphical representation of a consumer's choice involving two goods, labeled as Good X and Good Y. The graph includes the following key elements: 1. **Axes**: - The horizontal axis represents the quantity of Good Y. - The vertical axis represents the quantity of Good X. 2. **Indifference Curves (I1, I2, I3)**: - Three curved lines labeled I1, I2, and I3 represent different indifference curves. - An indifference curve shows combinations of two goods between which a consumer is indifferent, meaning they derive the same level of satisfaction or utility. - I3 is above I2, and I2 is above I1, indicating higher levels of utility as you move to higher curves. 3. **Budget Constraint (BC)**: - A straight line labeled BC depicts the budget constraint. - It represents all possible combinations of Good X and Good Y that the consumer can purchase given their budget and the prices of the goods. - The point where the budget line touches the highest achievable indifference curve represents the optimal choice for the consumer. 4. **Point (X*, Y*)**: - The intersection of the budget line (BC) with the indifference curve I2 at point (X*, Y*) marks the optimal choice, where the consumer gets the maximum utility within their budget. The graph illustrates how a consumer allocates their income between two goods to achieve maximum satisfaction, given their budget constraints.
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