7 A university student has two options for meals: eating at the food hall for $6 per meal, or eating instant noodles for $1.50 per meal. His weekly food budget is $60.

a Draw the budget constraint showing the trade-off between food hall meals and instant noodles. Assuming that he 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 instant noodles 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 per cent of his income on food hall meals. Label the new optimum as point B.

c What happened to the quantity of instant noodles 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 instant noodles. What is this type of good called?