Question

Any bundle of goods located outside (versus inside) of a consumers budget constraint will ________.

1) yield more utility than any bundle located inside the budget constraint
2) yield more utility than any bundle located on the budget constraint
3) imply the consumer is not spending all of his or her income
4) be unobtainable, given the consumer's income

Answer 1

Any bundle of goods located outside of a consumer's budget constraint will be unobtainable, as they are not affordable given the consumer's income.

Step-by-step explanation:

Any bundle of goods located outside (versus inside) of a consumer's budget constraint will be unobtainable, given the consumer's income. While these bundles might yield higher utility, they are not affordable given the budget set. Indifference curves that cross the budget line, like Ul, indicate combinations of goods that provide the same level of satisfaction or utility. However, there is always a higher, attainable indifference curve that touches the budget line at exactly one point of tangency, ensuring consumer equilibrium.