Affordability within the budget set becomes irrelevant in the case as shown in figure 5.1. So we actually need to work with the BL. The above best point X is referred to as an interior optimum since it lies within the BL. It is attained under well-behaved preferences. However, in the case of such preferences, a boundary optimum (or corner solution) can possibly arise. See figure 5.2 for this possibility. In this diagram, the corner optimum X=(xl,0) indicates that the consumer will optimally specialize in consuming only good 1 at the level of xI=m/p even if she has smooth and well-behaved preferences. This thing happens because she cares so much about good 1 that the tangency condition may hold at the corner or may be violated, as shown in both panels of figure 5.2. This suggests that tangency is a necessary condition for the optimal choice to involve consuming some of both goods in the case of smooth and well-behaved ICs. Q2. What is the difference in optimum between the two panels of figure 5.2? Tangency holds for only one of the panels, and what is the implication of the tangency for interactions between the consumer's behavior and the market's requirements? Affordability within the budget set becomes irrelevant in the case as shown in figure 5.1. So we actually need to work with the BL. The above best point X is referred to as an interior optimum since it lies within the BL. It is attained under well-behaved preferences. However, in the case of such preferences, a boundary optimum (or corner solution) can possibly arise. See figure 5.2 for this possibility. In this diagram, the corner optimum X=(xl,0) indicates that the consumer will optimally specialize in consuming only good 1 at the level of xI=m/p even if she has smooth and well-behaved preferences. This thing happens because she cares so much about good 1 that the tangency condition may hold at the corner or may be violated, as shown in both panels of figure 5.2. This suggests that tangency is a necessary condition for the optimal choice to involve consuming some of both goods in the case of smooth and well-behaved ICs. Q2. What is the difference in optimum between the two panels of figure 5.2? Tangency holds for only one of the panels, and what is the implication of the tangency for interactions between the consumer's behavior and the market's requirements