Use the following to answer questions:
Figure: Kristin's Budget Line
-(Figure: Kristin's Budget Line) Look at the figure Kristin's Budget Line. The price of a cup of cappuccino is $3, and the price of an apple is $1. Suppose Kristin initially consumes 10 cups of cappuccino and 30 apples. Then the price of apples increases to $3 each and the price of a cappuccino remains unchanged. As a result of this price change, Kristin's optimal consumption bundle changes, reflected by a decrease in the consumption of both apples and cappuccinos. This suggests that:
A) apples are a Giffen good.
B) cappuccino is a Giffen good.
C) both apples and cappuccino are normal goods.
D) apples are an inferior good.

Question

Use the following to answer questions:
Figure: Kristin's Budget Line 
-(Figure: Kristin's Budget Line) Look at the figure Kristin's Budget Line. The price of a cup of cappuccino is $3, and the price of an apple is $1. Suppose Kristin initially consumes 10 cups of cappuccino and 30 apples. Then the price of apples increases to $3 each and the price of a cappuccino remains unchanged. As a result of this price change, Kristin's optimal consumption bundle changes, reflected by a decrease in the consumption of both apples and cappuccinos. This suggests that:
A) apples are a Giffen good. 
B) cappuccino is a Giffen good. 
C) both apples and cappuccino are normal goods. 
D) apples are an inferior good.

Quizplus · Accepted Answer

Both apples and cappuccino are normal goods because the consumption of both decreases when the price of apples increases, indicating that the substitution and income effects lead to a reduction in quantity demanded for both goods.

Use the Following to Answer Questions