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-(Figure: Kristin's Budget Line)Use 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 question: 
-(Figure: Kristin's Budget Line)Use 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

When the price of apples increases and leads to a decrease in the consumption of both apples and cappuccinos, it suggests that both goods are normal goods. This is because Kristin has to reallocate her budget due to the price increase, reducing her consumption of both goods.

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