Question

Explain the following:

Indifference curve for perfect substitutes and complements.

Answer 1

In the case of perfect substitutes, the Marginal Rate of Substitution (MRS) remains constant. This is because perfect substitutes are essentially similar goods that can replace each other without any change in the overall level of satisfaction. As a result, their indifference curves are straight lines, as shown in Figure (A).

For perfect complements, the indifference curves are L-shaped or right-angled. This shape reflects that these goods are always consumed together in fixed proportions, meaning an increase in the quantity of one good without a corresponding increase in the other does not increase overall satisfaction. This is shown in Figure (B).