MGEB01H3 Lecture Notes - Lecture 10: Tangent, Utility Maximization Problem, Substitute Good
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The case of perfect substitutes is such that the mrs is constant. Note that average is the same as extreme here. Now we are in a position to generalize our utility maximization problem. We have a tangency condition if the ic cuts the budget line at two points, we can always. Tangency means only touching at one exact point. One property of tangency is that the slope of the two lines (the budget line and the. One thing you should remember that the tangency condition alone does not yield the optimal soption. Each ic has a particular consumption bundle that has the slope equal to the price ratio . condition is that the optimal bundle must be on the budget line. Our assumptions (more is better than less, average is better than extreme) do not always guarantee that we can tangency, though. Suppose that we observe a consumer"s choices over time:
