Fact 9.3.2

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 normal goods.

Refer to Fact 9.3.2. If the price of a muffin rises to $1.50 and the price of coffee falls to $1.75 a cup, will Jim continue to buy 10 muffins and 20 cups of coffee?

Question

Fact 9.3.2 
 
 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 normal goods. 
 
 Refer to Fact 9.3.2. If the price of a muffin rises to $1.50 and the price of coffee falls to $1.75 a cup, will Jim continue to buy 10 muffins and 20 cups of coffee?

Answer

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

Answer

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

Answer

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

Answer

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

Answer

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

Crowdly

Fact 9.3.2 Jim has made his best affordable choice of muffins and coffee. He...

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