Question : Statement 1: The consumer's equilibrium is achieved when the budget line is steeper than the highest attainable indifference curve.
Statement 2: The consumer's equilibrium is determined by the intersection of the budget line and the highest attainable indifference curve.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statement 1 and statement 2 are true.
Option 4: Both statement 1 and statement 2 are false.
Correct Answer: Statement 1 is false, and statement 2 is true.
Solution : The correct answer is (b) Option B: Statement 1 is false, and statement 2 is true.
Statement 1 is false. The consumer's equilibrium is not achieved when the budget line is steeper than the highest attainable indifference curve. In fact, the budget line should be tangent to the highest attainable indifference curve at the point of consumer equilibrium.
Statement 2 is true. The consumer's equilibrium is determined by the intersection of the budget line and the highest attainable indifference curve. At this point, the consumer maximizes their utility given their budget constraint by choosing the consumption bundle where the marginal rate of substitution (MRS) equals the relative price of the goods, which is represented by the slope of the budget line.
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