Q#6 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. Now the price of a muffin rises to $1.50 and the price of coffee falls to $1.75 a cup. Show with the help of graph as well
a. Will Jim now be able and want to buy 10 muffins and 20 coffees?

b. Which situation does Jim prefer: muffins at $1 and coffee at $2 a cup or muffins at $1.50
and coffee at $1.75 a cup?

c. If Jim changes the quantities that he buys, will he buy more or fewer muffins and more or
less coffee?

d. When the prices change, will there be an income effect, a substitution effect, or both at
work?

Answer rating: 100% (QA)

a Total income 10 1 dollar 20 2 50 dollars Cost of 10 muffins and 20 cups of co... View the full answer