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Interior Solution <Back to Last Page>     <Full Glossary>

Definition of Interior Solution: An interior solution is a choice made by an agent that can be characterized as an optimum located at a tangency of two curves on a graph.

A classic example of an interio solution is the tangency between a consumer's budget line (characterizing the maximum amounts of good X and good Y that the consumer can afford) and the highest possible indifference curve. The slope of that tangency is where:

(marginal utility of X)/(price of X) = (marginal utility of Y)/(price of Y)

Contrast interior solution with corner solution. (Econterms)

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