The utility-maximizing bundle of goods is found at the point of tangency between the budget constraint and an indifference curve. In the following diagram, the utility-maximizing bundle is the one labeled point K. There are two different, but equally important, ways to interpret this point.

a. Of the three points on the consumer€™s budget constraint (J, K and L), what makes K special?
b. Of the three points on the consumer€™s indifference curve (M, K and N), what makes K special?

Transcribed Image Text:

Good Y Indifference curve Budget constraint Good X