Will jim buy more or fewer muffins

Reference no: EM132115732

Question: 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.

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

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

Reference no: EM132115732

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