Suppose the price of a quart of milk rises from $1 to $1.25 and the price of a T-shirt rises from $8 to $10.If the CPI rises from 150 to 175,then people likely will buy

Question

Quizplus · Accepted Answer

Increase in CPI indicates an overall increase in the price level of goods and services in the economy. As the price of milk and T-shirts have also risen, people are likely to have a reduced purchasing power. Therefore, they would tend to buy fewer quantities of both milk and T-shirts. Hence, the best choice is D - less milk and fewer T-shirts.

Suppose the Price of a Quart of Milk Rises from $1