Economics • Economic BasicsHard
In the theory of consumer behavior, what does a corner solution imply when maximizing utility subject to a budget constraint?
A. The consumer allocates income equally among all available goods.
B. The consumer's marginal rate of substitution equals the price ratio at an interior point.
C. The consumer chooses to consume zero quantities of at least one of the goods.✓ Correct Answer
D. The budget line intersects the indifference curve at an infinite slope.
💡 Solution & Explanation
A corner solution occurs in consumer theory when the utility-maximizing choice falls on one of the axes, requiring the consumer to purchase zero units of at least one good. Interior solutions instead satisfy the tangency condition where the marginal rate of substitution matches the market price ratio at positive quantities.
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