Indifference Curves for Complementary Goods

Indifference Curves for Complementary Goods - bend of the...

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Indifference Curves for Complementary Goods: Mittens What if the two goods being evaluated are pretty much the same? Such goods are called substitute goods: the buyer considers them to be interchangeable. One example of perfect substitutes (though some might argue otherwise) could be Coke and Pepsi. If you consider them to be the same thing, then you don't mind which one you get. More is still better, but you don't care what combination of the two you get, which means that when you have a lot of Pepsi, you would not be willing to trade three cans of Pepsi for one can of Coke, eliminating the inward
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Unformatted text preview: bend of the indifference curves. This results in indifference curves like this: Indifference Curves for Substitute Goods: Cola Tina's Budget Constraint If we know her indifference curves, we can draw her budget constraint in with them on the same graph. After that, it is simply a matter of finding the outermost indifference curve that is tangent to (just barely touches) her budget constraint, and use this tangent point as her optimal combination of wine and glasses. In this case, it is the second indifference curve that optimizes her utility given her budget....
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This note was uploaded on 02/09/2012 for the course ECO ECO2013 taught by Professor Jominy during the Fall '08 term at Broward College.

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Indifference Curves for Complementary Goods - bend of the...

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