Use the information below to answer the following questions.

Fact 9.3.3

Jim has made his best affordable choice of muffins and coffee. He spends all of his income on 10 muffins at $1 each and 20 cups of coffee at $2 each. Muffins and coffee are ordinary goods. Now the price of a muffin rises to $1.50 and the price of coffee falls to $1.75 a cup.

Refer to Fact 9.3.3. When the price of a muffin rises to $1.50 and the price of coffee falls to $1.75 a cup, Jim

Question

Use the information below to answer the following questions. 
 
 Fact 9.3.3 
 
 Jim has made his best affordable choice of muffins and coffee. He spends all of his income on 10 muffins at $1 each and 20 cups of coffee at $2 each. Muffins and coffee are ordinary goods. Now the price of a muffin rises to $1.50 and the price of coffee falls to $1.75 a cup.

Refer to Fact 9.3.3. When the price of a muffin rises to $1.50 and the price of coffee falls to $1.75 a cup, Jim

Accepted Answer

does not continue to buy this combination because the marginal rate of substitution has changed.

Answer

can no longer afford to buy 10 muffins and 20 cups of coffee.

Answer

continues to buy this combination because the marginal rate of substitution has not changed.

Answer

ignores the substitution effect and the income effect because muffins and coffee are normal goods.

Answer

continues to buy this combination because it remains his best affordable choice.

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Use the information below to answer the following questions. Fact 9.3.3 ...

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