Question : Assertion: Consumer equilibrium occurs when the consumer's budget line is tangent to the highest possible indifference curve.
Reason: At this point, the consumer is maximizing their utility within the given budget constraint.
Option 1: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Option 2: Both the assertion and reason are true, but the reason is not a correct explanation of the assertion.
Option 3: The assertion is true, but the reason is false.
Option 4: The assertion is false, but the reason is true.
Correct Answer: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Solution : The correct answer is (a) Option A Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Consumer equilibrium occurs when the consumer's budget line is tangent to the highest possible indifference curve. This means that the consumer has allocated their budget in such a way that they cannot increase their utility by reallocating their spending. At this point, the consumer is maximizing their utility within the given budget constraint because any other consumption bundle would either exceed the budget or result in lower utility. Therefore, the reason provided correctly explains why consumer equilibrium occurs when the budget line is tangent to the highest possible indifference curve.
