Lesson preview · Indifference Curves
Special Preferences
~6 min · Free to read
Most indifference curves are smooth, downward-sloping, and convex. But some goods have preference structures that produce special shapes. Two classic cases show up constantly in economics: perfect substitutes (straight-line ICs) and perfect complements (L-shaped ICs). Understanding these extreme cases clarifies what’s happening in the ‘normal’ middle ground.
Perfect substitutes are goods the consumer views as interchangeable at a fixed rate. Think of generic batteries vs. brand-name batteries — if you consider them identical, you’d always swap one for one. Your ICs are straight lines with slope (or whatever the substitution rate is). The MRS is constant everywhere. There’s no diminishing willingness to trade, because the goods are functionally the same to you.
Key Term
Perfect Substitutes vs. Perfect Complements
Perfect substitutes: Goods that can be swapped at a constant rate. ICs are straight lines. . Example: Pepsi and Coke (for someone who doesn’t care about brand).
Perfect complements: Goods that are consumed in fixed proportions. ICs are L-shaped. . Example: Left shoes and right shoes — an extra left shoe with no right shoe adds zero utility.
Utility functions for perfect substitutes and perfect complements
Perfect complements are consumed together in fixed ratios. A camera body without a lens is useless; a lens without a body is useless. Having 3 camera bodies and 1 lens gives the same utility as having 1 body and 1 lens — the extra bodies add nothing. The L-shape of the IC reflects this: utility only increases when you move along the diagonal (increasing both goods in proportion). The ‘corner’ of the L is where the goods are in the ideal ratio.
Worked Example
A consumer treats tea and coffee as perfect substitutes with (1 cup of tea = 1 cup of coffee in their eyes). If tea costs 2 dollars and coffee costs 3 dollars, and their budget is 12 dollars, what do they buy?
Check yourself · no marks
If left shoes and right shoes are perfect complements consumed 1:1, and you currently have 4 left shoes and 2 right shoes, what’s your utility using ?
Commit to one first. Guessing and being wrong beats reading the answer cold.
Practice · 1 / 4
A consumer views pens and pencils as perfect substitutes (1:1). Pens cost 1 dollars and pencils cost 1.50 dollars. If they have 6 dollars, what will they buy?
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