A college student has two options for meals: eating at the dining hall for BDT 6 per meal, or eating a Star Kabab for BDT 1.50 per meal. Her weekly food budget is BDT 60. a. Draw the budget constraint showing the trade-off between dining hall meals and Star Kabab. 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 Star Kabab now rises to BDT 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 Star Kabab 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 Star Kabab. What is this type of good called?

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A college student has two options for meals: eating at the dining hall for BDT 6 per meal, or eating a Star Kabab for BDT 1.50 per meal. Her weekly food budget is BDT 60. a. Draw the budget constraint showing the trade-off between dining hall meals and Star Kabab. 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 Star Kabab now rises to BDT 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 Star Kabab 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 Star Kabab. What is this type of good called?

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