The utility-maximizing bundle of goods is found at the point of tangency between the budget constraint and an indifference curve.

In the diagram below, the utility-maximizing bundle is the one labeled point K . There are two different, but equally important, ways to interpret this point. ju5

a. Of the three points on the consumer’s budget constraint ( J, K, and L), what makes K special?

b. Of the three points on the consumer’s indifference curve ( M , K , and N ), what makes K special?

Transcribed Image Text:

Good Y M K N Indifference curve Budget -constraint Good X