Tim buys 2 pizzas and sees 1 movie a week when he has $16 to spend. The price of a movie ticket is $8, and the price of a pizza is $4. Draw Tim’s budget line. If the price of a movie ticket falls to $4, describe how Tim’s consumption possibilities change. Use the following information to work Problems 25 to 32. Cindy has $70 a month to spend, and she can spend as much time as she likes playing golf and tennis. The price of an hour of golf is $10, and the price of an hour of tennis is $5. The table shows Cindy’s marginal utility from each sport.

 

Â	Marginal	Marginal
Hours	utility from	utility from
per month	golf	tennis
1	80	40
2	60	36
3	40	30
4	30	10
5	20	5
6	10	2
7	6	1

25. Make a table that shows Cindy’s affordable combinations of hours playing golf and tennis. If Cindy increases her expenditure to $100, describe how her consumption possibilities change. Utility-Maximizing Choice

26. a. When Cindy has $70 to spend on golf and tennis, how many hours of golf and how many hours of tennis does she play to maximize her utility?

b. Compared to part (a), if Cindy spent a dollar more on golf and a dollar less on tennis, by how much would her total utility change?

c. Compared to part (a), if Cindy spent a dollar less on golf and a dollar more on tennis, by how much would her total utility change?

27. Explain why, if Cindy equalized the marginal utility per hour of golf and tennis, she would not

maximize her utility. Predictions of Marginal Utility Theory

28. Cindy’s tennis club raises its price of an hour of tennis to $10. The price of golf remains at $10 an hour and Cindy continues to spend $70 on tennis and golf.

a. List the combinations of hours spent playing golf and tennis that Cindy can now afford.

b. Along with the combinations in part (a), list Cindy’s marginal utility per dollar from golf and from tennis.

c. How many hours does Cindy now spend playing golf and how many hours does she spend playing tennis?

29. Use your answers to Problems 26a and 28 to draw Cindy’s demand curve for tennis. Over the price

range of $5 to $10 an hour of tennis, is Cindy’s demand for tennis elastic or inelastic?

30. Use your answers to Problems 26a and 28 to explain how Cindy’s demand for golf changed when the price of an hour of tennis increased. What is Cindy’s cross elasticity of demand for golf with respect to the price of tennis? Are tennis and golf substitutes or complements for Cindy?

31. Cindy loses her math tutoring job and the amount she has to spend on golf and tennis falls to $35 a month. How does Cindy’s demand for golf change? For Cindy, is golf a normal good or an inferior good? Is tennis a normal good or an inferior good?

32. Cindy takes a Club Med vacation, the cost of which includes unlimited sports activities. With no extra charge for golf and tennis, Cindy allocates a total of 4 hours a day to these activities.

a. How many hours does Cindy play golf and how many hours does she play tennis?

b. What is Cindy’s marginal utility from golf and from tennis?

c. Why does Cindy equalize the marginal utilities rather than the marginal utility per dollar from golf and from tennis?