A consumer consumes two normal goods, coffee and chocolate. The price of coffee rises. The income effect, by itself, suggests that the consumer will consume
A)more coffee and more chocolate.
B)less coffee and less chocolate.
C)more coffee and less chocolate.
D)less coffee and more chocolate.

Question

Quizplus · Accepted Answer

The income effect implies that as the price of coffee rises, the consumer's real income effectively decreases, leading them to consume less of both normal goods, coffee and chocolate.

A Consumer Consumes Two Normal Goods, Coffee and Chocolate