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Captain Haddock thinks water is always a worse option than alcohol and prefers drinking whisky at all times. Essentially, Haddock derives 0 utility from water.
Captain Haddock thinks water is always a worse option than alcohol and prefers drinking whisky at all times. Essentially, Haddock derives 0 utility from water. Water is what is called a "useless good" to him. [This is similar to the notion of "economic bad" we saw in class, except that there is no loss of utility due to the useless good] a. (2 pts) What does Haddock utility function look like? Plot a few indifference curves (changing the value of the utility but keeping the same shape) for Haddock that are compatible with the above description. b. (2 pts) Suppose Haddock has a budget of $50. A bottle of water costs $5 (gg inflation!) and a bottle of whisky $25. Plot Haddock's budget constraint and his indifference curve for the value that maximizes his utility. What is Haddock's consumption at this optimal point ?
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a Haddocks utility function can be represented as UW A A where U is the utility function W is the am...Get Instant Access to Expert-Tailored Solutions
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