Assume that a college student purchases only coffee and Snickers.If coffee is an inferior good and Snickers is a normal good,then the income effect associated with an increase in the price of a Snickers will result in
A)a decrease in the consumption of Snickers and a decrease in the consumption of coffee.
B)a decrease in the consumption of Snickers and an increase in the consumption of coffee.
C)an increase in the consumption of Snickers and an increase in the consumption of coffee.
D)an increase in the consumption of Snickers and a decrease in the consumption of coffee.

Question

Quizplus · Accepted Answer

When the price of Snickers increases, the real income of the student effectively decreases. Since Snickers is a normal good, the student will consume less of it. Coffee, being an inferior good, will see an increase in consumption as the student substitutes away from the more expensive Snickers.

Assume That a College Student Purchases Only Coffee and Snickers