Chapter 1. eFigure 5.7

Animated Graph
A Consumer's Indifference Curves
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You must read each slide, and complete any questions on the slide, in sequence.
Question 1 of 3

Question 1.

At this point we have all of the information that we need to construct Caroline's budget constraint: her income and the price of the two goods. Though not stated explicity, what else is assumed as we construct her budget constraint and find her optimal point of consumption?

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Correct! In order to maximize her utility and reach the highest possible indifference curve, Caroline will exhaust her budget and consume at a point on her budget constraint. In essence, we assume she receives no utility from “savings” and thus spends her entire budget on grape juice and Mountain Dew.
Incorrect! In order to maximize her utility and reach the highest possible indifference curve, Caroline will exhaust her budget and consume at a point on her budget constraint. In essence, we assume she receives no utility from “savings” and thus spends her entire budget on grape juice and Mountain Dew.