Indifference Curves and a Budget Constraint

Books cost $6, doughnuts 50 cents, and Lilly has $60. That buys ten books, or 120 doughnuts, or any mix on the straight line between. Her preferences are the three curves from the previous figure. She wants the highest curve she can reach.

The highest curve, the one through F, never touches the budget line, so F is out of reach whatever she does. The lowest curve is affordable at G and at H, but she can do better. The answer is B, where the budget line just touches the middle curve. Any other affordable point lies on a lower curve. The slider changes her budget, which slides the line in or out.