A college student has two options for meals: eating at the dining hall for $6 per meal, or eating a Cup O Soup for $1.50 per meal. Her weekly food budget is $60.a.Draw the budget constraint showing the trade-off between dining hall meals and Cups O 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 O Soup now rises to $2. Using your diagram from part (a), show the con-sequences 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 O Soup consumed as a result of this price change? What does this result say about the income and substitu-tion effects? Explain.d.Use points A and B to draw a demand curve for Cup O Soup. What is this type of good called?
Q: A college student has two options for meals: eating at the dining hall for $6 per meal, oreating a Cup O’ Soup for $1.50 per meal. Her weekly food budget is $60. a. Draw the budget constraint showing the trade-off between dining hall meals and Cups O’ 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 O’ Soup now rises to $2. 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 O’ 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 O’ Soup. What is this type of good called Step-by-step solution Step 1 of 4(a)The budget constraint for a college student can be drawn by calculating the values for thehorizontal and vertical intercepts. food budget Value of vertical intercept = price of the meal at the dining hall $60 = $6 = food budget Value of horizontal intercept = price of Cups O soup $60 = $1.50 =By plotting these values on the respective axis, we can draw a student’s budget constraint asshown below.\nBL i s the student’s budget constraint. If the student is assumed to be spending equal amountson both goods, his budget constraint BL will be tangent to his indifference curve I at point A,which represents the optimum consumption bundle of 5 meals at the dining hall and 20 Cups O’soups.
