[Char143]

I was watching the ninja plus lecture’s and one of the slides said “individual’s utility is maximized at the point where the budget line is tangent to the highest indifference curve”

I really have no idea what this means. I know what utility is and I understand the budget line meaning… I just can’t grasp what this sentence is saying. Can anyone dumb it down for me?

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Kaylee]

Do you understand indifference curves? If so, picture your budget line and a set of indifference curves.

If your budget line doesn't intersect indifference curve, I3 you can't afford that.
If your budget line intersects indifference curve I1 twice, you can afford better.
If your budget line intersects indifference curve I2 once, it's tanget and that's the best you can do.

[Char143]

That was so helpful, thank you!

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Author]

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