A college student has two options for meals: eating at the dining hall for $6 pe

Question

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. Assume that she spends equal amounts on both goods. On the following graph, use the green line (triangle symbol) to draw the college student's budget constraint. Then use the black point (plus symbol) to indicate the initial optimum in this case. 50 T 45 40 Initial Budget Constraint a 35 Initial Optimum (A) 6 30 O 25 20 New Budget Constraint 15t 10 New Optimum (B) 0 2 4 6 810 12 14 16 18 20 Meals at Dining Hal

Explanation / Answer

True

With the price increase, the quantity of Cup of Soup consumed increases from 20 to 22. For a good to be Giffen good the quantity consumed increases with the increase in price and the demand curve would be upward sloping.

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