How would a coupon for coffee affect consumer choices differently than a cash transfer?

• A. A coupon is an in-kind subsidy that lowers the effective price of coffee and induces more coffee consumption than an equivalent cash transfer, while a cash transfer raises overall purchasing power so consumers reallocate spending to equalize marginal utility per dollar across goods.
• B. A coupon for coffee reduces the marginal utility of coffee so much that consumers end up buying less coffee than they would with a cash transfer.
• C. A coupon and a cash transfer are equivalent because both increase real income by the same monetary amount, so consumers will adjust consumption in the same way.
• D. A coupon forces consumers to purchase a fixed quantity of coffee and therefore has no effect on marginal utility per dollar, whereas a cash transfer changes relative prices and choices.

Answer: (A)