Question

Javon is consuming his optimal utility-maximiring consumption bundle of lobster and macaroni-and-cheese dinners when he loses his job and has less money to spend. Both are normal goods. When he adjusts his consumption to reflect the new level of income, the number of macaroni-and-cheese dinners he consumes:

a. falls.
b. stays the same
c. changes, but it is impossible to determine in what way,
d. rises.

Answer 1

Option (a) is correct.

Step-by-step explanation:

The consumption of macaroni-and-cheese dinners falls. A change in income level of the consumer is related with the demand for normal and inferior goods.

As we know that there is a positive relationship between the income of the consumer and the demand for normal goods. Hence, as the income of the falls then as a result the demand for normal goods (macaroni-and-cheese dinners) falls. Normal goods are generally have a positive income elasticity of demand.