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

Answer 1

Answer:

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Explanation:

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Answer 2

Answer:

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