Is above an indifference curve
Is below an indifference curve
Is tangent to an indifference curve
Cuts an indifference curve
✅ The correct answer is C.
The consumer is in equilibrium at a point where the budget line is tangent to an indifference curve. It means that marginal substitution rate between X and Y (MRSXY) should be diminishing.
The consumer is in equilibrium at a point where the budget line is tangent to an indifference curve. It means that marginal substitution rate between X and Y (MRSXY) should be diminishing.