As part of recent cutbacks at his company, Paul just accepted a 10percent cut in pay. Now he brews coffee at home instead of stopping at Starbucks every day. Based on this behavior, what can we assume about these goods for Paul?
A) Home-brewed coffee is a normal good and Starbucks coffee is an inferior good.
B) Home-brewed coffee and Starbucks coffee are normal goods.
C) Home-brewed coffee will become a normal good over time.
D) Home-brewed coffee is an inferior good and Starbucks coffee is a normal good.

Question

Quizplus · Accepted Answer

Paul's switch to home-brewed coffee after a pay cut suggests that he views Starbucks coffee as a normal good (a good for which demand increases as income increases) and home-brewed coffee as an inferior good (a good for which demand increases as income decreases).

As Part of Recent Cutbacks at His Company, Paul Just