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Perfect Substitutes and Perfect Complements

Two goods are perfect substitutes if they can be used in place of one another with equal ease to satisfy consumer wants. With perfect substitutes, consumers are willing to give up the same amount of one good to obtain additional units of the other good, resulting in a linear indifference curve with zero curvature. Perfect complements are consumed together in fixed proportions, with no possibility of substitution between them. Indifference curves for perfect complements are L-shaped, showing the strict proportions in which the goods must be consumed to maintain satisfaction levels. Satisfaction cannot be altered by adding more of one complement without also adding more of the other in the fixed proportion.

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Vijayalaxmi Dhaka
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2K views2 pages

Perfect Substitutes and Perfect Complements

Two goods are perfect substitutes if they can be used in place of one another with equal ease to satisfy consumer wants. With perfect substitutes, consumers are willing to give up the same amount of one good to obtain additional units of the other good, resulting in a linear indifference curve with zero curvature. Perfect complements are consumed together in fixed proportions, with no possibility of substitution between them. Indifference curves for perfect complements are L-shaped, showing the strict proportions in which the goods must be consumed to maintain satisfaction levels. Satisfaction cannot be altered by adding more of one complement without also adding more of the other in the fixed proportion.

Uploaded by

Vijayalaxmi Dhaka
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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YY

Two goods are said to be perfect substitutes of each other, if they can be used in place
of one another with equal ease to satisfy consumer want. In case of perfect substitutes,
one good can be substituted for the other good in a constant proportion. In other words,
the consumer is willing to give up the same amount of one commodity to obtain each
additional unit of other commodity. Here, the marginal rate of substitution between two
goods is constant and the i ndifference curve is, therefore, linear (Fig. (a)) with zero
curvature meeting b0& axis. Y

Y
3
 
  
    Y

YY

YY

In this figure, Y 1 Y2=Y2 Y3=Y3 Y4 and X 1 X 2=X2 X3=X3 X 4. Therefore, the consumer is
prepared to part with equal quantities of commodity' Y' to obtain each additional unit of
commodity 'X'. However, such perfect substitutes are only of theoretical interest. In real
life, goods are imperfect substitutes to each other. Perfect substitutes, f or all practical
purposes, can be considered as one good. Y

Now, we consider the case of perfectly complementary goods, which are also consumed
together in fixed proportions. Marginal rate of substitution (MRS) between such goods is
zero. There is no | possibility of substitution between perfect complementary goods. A
consumer wants fixed quantities of j both the commodities (say, left and right shoe) to
give him some satisfaction. The satisfaction level j cannot be maintained by the addition -
of some units of 'X' commodity at the expense of some units of commodity 'Y¶ The rate
of substitution in this case will be infinite. In other words, the addition of one extra unit
of 'X' will be at the cost of infinite units of' Y' so as to maintain the same amount of
satisfaction. Y
The indifference curve for perfect complements will be right-angled or L-shaped, kinks ('
A','B' or 'C') showing the strict proportion in which the two complementary commodities
are used (Fig. (b)). Here, mere increase in number of units of commodity 'X' or 'Y' will
make the total satisfaction unaltered. The satisfaction level can be raised by
simultaneous increase in the number of units of the two commodities in fixed
proportions, in which case the consumer will reach at a higher L -shaped indifference
curve. It is important to note that the indifference curve analysis breaks down in the
case of perfect complementary goods, as there is no possibility of substitution between
such goods. Y

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