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 and is reflected by a decrease in the consumption of both apples and cappuccinos.This suggests that:

Question

Quizplus · Accepted Answer

Kristin's decrease in consumption of both goods when the price of apples increases suggests that both apples and cappuccinos are normal goods, as her consumption decreases due to the income effect of the price increase.