Corner Solution


Health Economics

  • A corner solution is a choice outcome that entails the individual being on a constraint such as a budget constraint at the point at which the constraint touches one of the axes. It arises from the inability to purchase negative quantities of a good or service or from the absence of negative prices. It is a limiting case in which the usual maximizing conditions, like marginal value being equal to price, cannot apply. The indifference curve is not tangential to the budget constraint. Similar results can be obtained in labour supply decisions and production functions.