Suppose the price of a gallon of ice cream rises from $4 to $5 and the price of a can of coffee rises from $2 to $2.50.If the CPI rises from 150 to 177,then people likely will buy
A)more ice cream and more coffee.
B)more ice cream and less coffee.
C)less ice cream and more coffee.
D)less ice cream and less coffee.

Question

Quizplus · Accepted Answer

An increase in the CPI indicates a general increase in the price level of goods and services. If the price of ice cream and coffee both rise, people are likely to buy less of both items, leading to a decrease in demand as the cost to purchase these items becomes relatively more expensive. So, people will likely buy less ice cream and less coffee.

Suppose the Price of a Gallon of Ice Cream Rises