Which of the following indicates a situation of consumer's equilibrium for a rational consumer consuming two goods?

Option 1 -> At tangency, the budget line touches the highest possible indifference curve, indicating optimal allocation.

Option 2 -> If MRS > price ratio, the consumer can reallocate and increase utility, so this is not equilibrium.

Option 3 -> A point below the budget line means income is not fully utilized, which is suboptimal.

Option 4 -> Intersection without tangency means the consumer can still move to a higher indifference curve.

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Hence, Option 1: The point at which the budget line just touches (is tangent to), one of the indifference curves -> Consumer equilibrium occurs at the tangency point between the budget line and the highest attainable indifference curve. At this point, MRS (Marginal Rate of Substitution) equals the price ratio, meaning the rate at which the consumer is willing to substitute one good for another equals the market rate. This represents the optimal consumption bundle where the consumer maximizes utility subject to their budget constraint. -> correct