And so this is a case of perfect substitutes. So another indifference curve might look something like this. But it's always going to have a slope of negative 1. But the slope would be the exact same thing. Now the last situation I want to think about is what we'll call perfect complements. So goods that if you have one of them, you really need the other one.
Otherwise, one of the two is somewhat useful. And maybe the most pure version of perfect complements-- let me write it over here. So let's say this is the quantity of right shoes. And this is the quantity of left shoes. So obviously, if we're talking about just one pair, you have one of each.
Now, do you care if you really get more left shoes? You have the exact same preference. It doesn't really change your life. You have the same total utility. In fact, it might even be negative because you have to store them all. But let's just assume you have the same total utility and you don't get any benefit of having those spare shoes in case your shoe gets destroyed or anything like that. In terms of what you can get out it, what you can wear, you get the same utility.
And so you're really indifferent no matter how many extra left shoes someone gives you. And you'd also be indifferent no matter how many extra right shoes someone gives you.
Now, you would be happier if you had maybe two right shoes and two left shoes because now you have two pairs. So this would be another indifference curve. And once again, if you have two right shoes, you really don't care how many more than two left shoes you get. This is quite inconsistent with the observed behaviour of consumers.
This reinforces our belief that indifference curves of consumers are generally convex. As seen above, indifference curves for perfect substitutes are linear. If the slope of the budget line is greater than the slope of indifference curves, B would lie on a higher indifference curve than L and the consumer will buy only Y. If the slope of the budget line is less than the slope of indifference curves, L would lie on a higher indifference curve than B and the consumer will buy only X.
It should be noted that in these cases too, the consumer will not be in equilibrium at any point between B and L on the price line since in case of Figure 8. It is thus manifest that even in case of perfect substitutes, the consumer will succumb to monomania. Another non-normal case is of perfect complementary goods, is depicted to Figure 8.
Indifference curves of perfect complementary goods have a right-angled shape. In such a case the equilibrium of the consumer will be determined at the corner Fig. In case of perfect complements equilibrium point of the indifference curve IC 2 which is indifference curve just touching the budget line BL at point C Indifference curve IC 2 is the highest possible indifference curve to which the consumer can go.
In Figure 8. Article Shared by. Related Articles. Income Effect: Income Consumption Curve with curve diagram. We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits.
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The cookie is used to store the user consent for the cookies in the category "Analytics". The cookies is used to store the user consent for the cookies in the category "Necessary". The cookie is used to store the user consent for the cookies in the category "Other. The marginal rate of substitution has a few limitations. The main drawback is that it does not examine a combination of goods that a consumer would prefer more or less than another combination. This generally limits the analysis of MRS to two variables.
Also, MRS does not necessarily examine marginal utility since it treats the utility of both comparable goods equally, though in actuality they may have varying utility.
Indifference curve analysis operates on a simple two-dimensional graph. Each axis represents one type of economic good. The consumer is indifferent between any of the combinations of goods represented by points on the indifference curve because these combinations provide the same level of utility to the consumer.
Indifference curves are heuristic devices used in contemporary microeconomics to demonstrate consumer preference and the limitations of a budget. Most indifference curves are usually convex because as you consume more of one good you will consume less of the other. So, MRS will decrease as one moves down the indifference curve. This is known as the law of diminishing marginal rate of substitution. If the marginal rate of substitution is increasing, the indifference curve will be concave, which means that a consumer would consume more of X for the increased consumption of Y and vice versa, but this is not common.
Also, MRS does not necessarily examine marginal utility because it treats the utility of both comparable goods equally though in actuality they may have varying utility. Fixed Income Essentials. Advanced Options Trading Concepts. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.
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