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In indifference curve analysis, a consumer attains equilibrium at the point where the budget line is:
Aperpendicular to the indifference curve
Btangent to the highest attainable indifference curve
Cintersecting the highest attainable indifference curve
Dparallel to the lowest indifference curve
Answer & Solution
Correct answer: B. tangent to the highest attainable indifference curve
1. The consumer seeks the highest indifference curve reachable on the budget line.
2. This best point is where the budget line just touches, i.e. is tangent to, that curve.
3. An intersection means a higher curve is still reachable, and parallel or perpendicular positions are not equilibrium, so those options are wrong.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit II "Theory of Consumer Behaviour", p.21_
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