ECON 356

In Class Exercise Six

Let's see if you can do the following application of the consumer choice model:

College Meal Plans: 

Assume that a meal costs $5.00, whether that meal is prepared by the college dining hall or purchased in an off-campus restaurant. 

Student's budget = $4,000 (for meals and other goods for that term).

CG = $l

Draw a budget constraint/indifference curve situation where the student's utility is greatest where he consumes 500 meals at a cost of $2,500 and 1,500 units of other goods:

Now suppose the student is "forced" into a meal plan that provides 600 meals during the academic year and charges $3,000 regardless of the number of meals the student chooses to eat.  Careful - what would your budget constraint look like now?  Graph this situation and assume the student's indifference curves are shaped similar to what you drew in your graph above.  How would the utility change for the student - hint, the student will be made worse off?

However, not all students would be worse off -- graph a situation where the student is NOT made worse off by the meal plan - because of different preferences.