Answer to Question #126144 in Macroeconomics for Amjad

Question

A university is deciding between two meal plans. One plan charges a fixed fee of $600 per semester and allows students to eat as much as they want. The other plan charges a fee based on the quantity of food consumed. Under which plan will students eat the most? Explain through economic theory.

Answer 1

The student will eat most under the fixed fee charge plan. Under normal circumstances, the level of consumption is dictated by the level of income. Where as the level of income increases, the level of consumption also increases. Most of the students are not employed and thus to minimize on cost, they would prefer a fixed plan where they eat as much as they want. On the other hand, the other plan where the cost is varying with the number of meals taken, will be too expensive for the students.