To reach the highest indifference curve possible our
consumer chooses one which touches her budget constraint at
only one point. The budget constraint and indifference curve are
tangent; that is, they have the same slope at this point. Remember, the slope of the budget constraint is the price ratio and
the slope of the indifference curve is the ratio of marginal utilities.
Thus, a consumer maximizes her utility by finding a
consumption bundle where the rate at which she would substitute
Movies for Dining Out is the same rate at which the market lets her
substitute them. At any other rate she could make herself better off without spending any more money.
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