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Economics Problem Set: Budget Constraints

The document outlines a problem set for an economics course, focusing on a student's meal options and budget constraints. It includes tasks related to drawing budget constraints, indifference curves, and analyzing the effects of price changes on consumption. Additionally, it prompts the student to explore the concepts of income and substitution effects and to identify the type of good represented by the demand curve for Cup O' Soup.

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Jay C.S
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17 views1 page

Economics Problem Set: Budget Constraints

The document outlines a problem set for an economics course, focusing on a student's meal options and budget constraints. It includes tasks related to drawing budget constraints, indifference curves, and analyzing the effects of price changes on consumption. Additionally, it prompts the student to explore the concepts of income and substitution effects and to identify the type of good represented by the demand curve for Cup O' Soup.

Uploaded by

Jay C.S
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Dr.

Tran Binh Dai


RTA Pham Ngoc Tham

INTRODUCTION TO ECONOMICS

SUMMER SEMESTER 2024

PROBLEM SET 8

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 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?

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