Question

E. Alex is preparing an entertainment budget for her final month at the University of Alabama. Her plan is to attend as many tennis clinics as she can while purchasing enough tutoring assistance that she finishes her degree program strong. Here are Alex's budget and preferences: • Alex prefers a balance between academics (tutoring and fun (tennis clinics) • Alex has a budget of $800 QTennis 0 5 10 15 20 25 30 35 40 45 Q Tutoring sessions a) What is the price of each tutoring session? b) What is the price of each tennis clinic? c) Draw and label a single indifference curve that reflects her balanced preferences and an equilibrium of 10 tutoring sessions and 15 tennis clinics. d) Alex wonders what will happen if the price of tutoring increases by 50% as expected. Illustrate this scenario for her by doing the following: a. Draw her new budget line and label it 12. b. Draw an indifference curve for her new equilibrium point. Remember that her preferences did not change. Label it U2.

Answer 1

a) Budget = $800

X-intercept = Budget/ Price of tutoring session

40= 800/ Price of tutoring session

Thus, Price of tutoring session = 800/40 = $20

b) Y-intercept= Budget/ Price of each tennis session

Price of tennis session =800/20 = $40

d.) New price of tutoring session $30

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