What's the economic meaning of beer?

John is hosting George for lunch at his apartment.

The available lunch fixings are as follows:

2 plain hot dogs with buns
1 sealed foil pak of mustard, enough for only 1 hot dog
1 small, leaky keg of beer
1 empty 9 ounce plastic cup

Assumptions : As soon as John has drawn beer from the keg to the plastic cup, the rest of the beer in the keg will leak uselessly away down the drain. The cup cannot be shared.

John has no idea what George's food preferences are.

John and George have always been very competitive, and neither would willingly allow the other to get the better of any situation.

John sets two places at the table. Each place has a hot dog with bun.

One of the places has the foil pak of mustard and the other has the plastic cup of beer.

George is allowed to choose where to sit.

What economic fact(s) can be deduced from the outcome of this process? [ed]

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My answer: whether George

My answer:

whether George would rather have his hot dog with a pak of mustard or with a cup of beer.

I suspect there's a deeper question here, but I don't know what it is. What is the relevance of the keg? Why is it mentioned at all?

What can be deduced from the way John set up the places at the table?

I used to have stress dreams

I used to have stress dreams about situations like this. Now I always carry spare cup and utensils in the car.

First Economic Fact, about George

All that can be known about George is summed up in the following:

If he chooses to sit at the place with the beer, then we know that he does NOT rank consuming a mustard-hot-dog above consuming a plain hot dog with the supplied cup of beer on his subjective value scale.

If he chooses to sit at the place with the mustard pak, then we know that he does NOT rank consuming a plain hot dog and the supplied cup of beer above conmsuming a mustard-hot-dog on his subjective value scale.

We know nothing about what he DOES prefer, since he might rank both choices at effectively the same level on his subjective value scale and have decided to choose where to sit by flipping a mental coin to prevent starving to death from indecision.

Regards, Don

Facts about John later.

I suppose the game rules

I suppose the game rules about each not knowing the other's preferences and being competitive is to make sure we don't complicate the puzzle by taking into account how George may value John's happiness, or vice versa.

Since John does not want to

Since John does not want to chance that George will get the better of him, and since John does not know what George will do, then John will attempt to make the two spots so that he (John) does not prefer either one to the other.

Second Economic Fact, about John (Constant_ has it right)

From John's point of view, this problem is much like slicing a piece of cake to share with one other person, who chooses his piece. If the person with the knife fails to make a substantially even split, he will be the one left with the smaller piece. The only difference is that, in the case of the cake, the value judgements of both the slicer and the chooser are assumed to be made on the same basis, the size of the slice.

Here, John's problem is to maximize his subjective value of what is left for him after George chooses where to sit, independent of his choice.

Instead of a cake knife, John has control of how much beer to draw from the keg into the cup. If John draws so much beer that he would definitely prefer the beer to the mustard, he is highly likely to end up with no beer. If John draws so little beer that even he would prefer the mustard, he would likely get the small amount of beer, effectively leaving beer on the table, so to speak, as he likely still could have drawn off more and still gotten the beer.

The keg is leaky to prevent John from being stingy with the beer and saving the remainder in the keg for after George has gone home.

Effectively, John is trying to express the subjective value of the foil pak of mustard in terms of ounces of beer in the cup, also a subjective valuation.

If we take away the beer, we have a first order good, capable of being used directly to satisfy goals or ends, the mustard-hot-dog. We have a higher order good, or production factor, the foil pak of mustard, used in producing a first order good. And we have the plain hot dog, which can either be a higher order good used to make the first order good above, or it can be a first order good itself, directly consumed.

The subjective economic value of a first order good is a relatively straight-forward matter of asking where it is ranked on an individual's subjective, ordinal value scale.

The subjective value of a higher order good, such as the mustard pak, is a far more complex question, even if we are not initially attempting to determine its market price.

It is usually claimed that the value of a higher order good is imputed from the value of the first order good that it makes possible. It is certainly true that an isolated increase in the value of a first order good will increase the value of a higher order good it is dependent upon, and if the first order good is valueless, then the higher order good is valueless as well, unless it has an alternate use.

However, even this simple hot dog example can easily be seen to refute the idea that the value of a higher order good can be simply imputed from the value of the first order good associated with it.

All we need to do is consider what affects the value of the foil pak of mustard.

Certainly, the higher the value of the mustard-hot-dog, the more would sacrificed if the foil pak is lost before being used. This is where the idea of imputation comes from, at least in part.

But this is only the whole story if the process of applying the mustard has no opportunity cost. If the pak had some other valuable and realizable use, then net benefit attributable to the pak in producing the mustard-hot-dog would have to be reduced. But we'll ignore that here.

Here the important opportunity cost is the plain hot dog. The application of the mustard eliminates the plain hot dog. Its loss reduces the net benefit of the mustard to the extent of the previous value of the plain hot dog. It is clear that one person may greatly prefer a mustard-hot-dog to a plain hot dog, while a second person might care little or nothing about the mustard. The first person would assign a much higher value to the mustard pak.

Regards, Don

They have always been very competitive

Why are we told that they have always been very competitive, and neither would willingly allow the other to get the better of any situation?
Could that mean that, irrespective of their own preferences they would be willing to deny the other person their first choice?
If so, if George sits next to the beer, we can deduce that he thinks John would prefer the beer to the mustard, irrespective of his own preference.

It can be deduced that John

It can be deduced that J is a dope.

If I was hosting I'd just eat both hotdogs and drink all the beer directly from the keg before G arrived and leave him the mustard packet. That still counts as serving George lunch.

If George wishes to meet with

If George wishes to meet with John he will bring his own lunch as will john. John's dog will get the hot dogs.