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

Question

Quizplus · Accepted Answer

Since textbooks are a normal good, a decrease in their price will increase the purchasing power of the student, leading to an increase in their consumption. Ramen noodles, on the other hand, are an inferior good, which means that as the student's income increases, their consumption of Ramen noodles will decrease. Therefore, the income effect associated with a decrease in the price of textbooks will result in an increase in the consumption of textbooks and a decrease in the consumption of Ramen noodles.

Assume That a College Student Purchases Only Ramen Noodles and Textbooks