A college student has two options for meals: eating at the dining hall for $6 per meal,
Question:
A college student has two options for meals: eating at the dining hall for $6 per meal, or eating a Cup 0' Soup for 51.50 per meal. Her weekly food budget is 560.
a. Draw the budget constraint showing the trade- off between dining hall meals and Cups 0' Soup. Assuming that she spends equal amounts on both goods. draw an indifference curve showing the optimum choice. Label the optimum as point A.
b. Suppose the price of a Cup 0' Soup now rises to 52. Using your diagram from part (a), show the consequences of this change in price. Assume that our student now spends only 30 percent of her income on dining hall meals. Label the new optimum as point B.
c. What happened to the quantity of Cups 0' Soup consumed as a result of this price change? What does this result say about the income and substitution effects? Explain.
d. Use points A and B to draw a demand curve for Cup 0' Soup. What is this type of good called?
Expert Answer:
a The budget constraint for a college student can be drawn by calculating the values for the horizontal and vertical intercepts Value of vertical inte... View the full answer
