Amy purchases only coffee and croissants.If both coffee and croissants are normal goods, the income effect associated with a decrease in the price of croissants will result in a(n):
A)increase in the consumption of croissants and a decrease in the consumption of coffee
B)decrease in the consumption of croissants and a decrease in the consumption of coffee
C)increase in the consumption of croissants and an increase in the consumption of coffee
D)decrease in the consumption of croissants and an increase in the consumption of coffee

Question

Quizplus · Accepted Answer

As croissants are a normal good, a decrease in their price will increase their purchasing power, leading to an increase in the consumption of croissants. However, since coffee and croissants are complementary goods, the increase in the consumption of croissants will also increase the consumption of coffee. Therefore, there will be an increase in the consumption of both coffee and croissants.

Amy Purchases Only Coffee and Croissants