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In class, we made assumptions about indifference curves that made them be convex (with a couple of exceptions like perfect substitutes and perfect complements). This
In class, we made assumptions about indifference curves that made them be convex (with a couple of exceptions like perfect substitutes and perfect complements). This example shows you another case with unusual indifference curves: when one of the goods is neutral. Bobby is asked about his preferences over two goods, nut bars and soda pop. Denote the quantity of nut bars (11 and quantity of soda pops 632- Bobby likes nut bars, with the usual assumption of morerisrbetter. However, because Bobby is trying to stay healthy, when he receives a soda pop, he just pours it down the drain. Thus he does not consume any of the pop. Assume that he does not feel bad about wasting the drink in this way, nor does he feel tired pouring pop down the drain. In this sense, soda pops are neutral goods he doesn't care about them one way or the other. In other words, Bobby considers a bundle like (2, 2) as identical to (2, 99). 2.1 Draw a set of axes with '31 on the horizontal and 32 on the vertical. Draw in several of Bobby's indifference curves. [Hint: pick an arbitrary starting point, say (10,10). Then ask yourself, which points would Bobby be indifferent to this bundle?] What's special about these curves? Draw an arrow indicating the direction of increasing preference. 2.2 Write down a utility function that would describe Bobby's preferences. What's special about it
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