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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 cappuccino remains unchanged. As a result of the price change, Kristin's optimal consumption bundle changes, reflected by a decrease in the consumption of both apples and cappuccinos. If Kristin is to maintain the same level of utility as before the price change, she must:
A) increase her income.
B) decrease her income.
C) keep her income the same, since only one good's price changed.
D) increase her income by $2.

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 cappuccino remains unchanged. As a result of the price change, Kristin's optimal consumption bundle changes, reflected by a decrease in the consumption of both apples and cappuccinos. If Kristin is to maintain the same level of utility as before the price change, she must:
A) increase her income. 
B) decrease her income. 
C) keep her income the same, since only one good's price changed. 
D) increase her income by $2.

Quizplus · Accepted Answer

Kristin must increase her income to maintain the same level of utility because the price increase of apples reduces her purchasing power, requiring more income to afford the same consumption bundle.

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