Sipho is a college student who receives a monthly allowance from his parents of R1000 which he uses to purchase food and other necessities. Sipho is made aware of a Campus food outlet that sells meals at R15 a meal. He then calculates that out of a total of R700 he uses for groceries, R450 is what he approximately spends on items that he uses to cook meals per month.

1. Using the information provided, construct a production possibilities frontier that represents the two choices that Sipho has in spending his money on either buying the R15 meals from the campus outlet and cooking the meals himself.

2. Given the production possibilities frontier constructed in 1, identity other costs that are associated with Sipho choosing to cook the meals himself as opposed to purchasing the R15 meals from the campus outlet.

Given Sipho’s monthly budget, if the price of the meals were to decrease to R7.50, Sipho would be willing to purchase 2 meals per day all other factors remaining the same.

3. Using the above information, construct a demand curve that shows Sipho’s demand for campus meals at the alternative prices over a period of a month ceteris paribus.

4. On the above diagram, illustrate the likely effect that an increase in Sipho’s allowance would have certris paribus. 5. Identify other factors that would have the same effect as that of 4. Sipho and other students realize that it is better for them to purchase the campus meals and they all start doing so.