Use the Information Below to Answer the Following Questions

question 1

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 rises to $1.50 and the price of coffee falls to $1.75 a cup,Jim

• A)continues to buy this combination because the marginal rate of substitution has not changed.
• B)can no longer afford to buy 10 muffins and 20 cups of coffee.
• C)continues to buy this combination because it remains his best affordable choice.
• D)does not continue to buy this combination because the marginal rate of substitution has changed.
• E)ignores the substitution effect and the income effect because muffins and coffee are normal goods.

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Definitions:

FTC Act

Legislation established to prevent unfair competition, deceptive acts, and regulate antitrust.

Sherman Act

A landmark federal statute in the field of United States antitrust law passed by Congress in 1890 to preserve competitive market conditions by prohibiting monopolies, cartels, and trusts.

Vertical Mergers

The combination of two or more companies that operate at different stages of production in the same industry, such as a manufacturer merging with a supplier.

Industrial Age

A period of history marked by major industrialization that transformed economies from being primarily based on agriculture and handicrafts to being based on manufacturing and machinery.