(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 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.

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kawthar alasadi · Accepted Answer

Final Answer : A, Explanation :  When the price of apples increases to $3, the same as cappuccinos, without an increase in income, Kristin cannot afford the same quantity of goods as before. To maintain the same level of utility with higher prices for apples, her income must increase to compensate for the higher costs.

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