Use the Information Below to Answer the Following Questions

question 10

Multiple Choice

Use the information below to answer the following questions.
Fact 9.3.3
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.Muffins and coffee are ordinary goods.Now the price of a muffin rises to $1.50 and the price of coffee falls to $1.75 a cup.
-Refer to Fact 9.3.3.When the price of a muffin and the price of a cup of coffee change,

• A)there is a substitution effect but no income effect.
• B)there is an income effect but no substitution effect.
• C)there is neither an income effect nor a substitution effect.
• D)there is both a substitution effect and an income effect.
• E)Jim remains on the same indifference curve.

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