How do perfect substitutes work?

A perfect substitute is a situation where two goods are viewed as identical. Perfect substitutes are commodities such that it is impossible to build a brand whereby customers prefer your product. Producers of a perfect substitute must except a market price and typically have no influence on the price.

What is perfect substitute indifference curve?

If two goods are perfect substitutes, their prices (per comparable unit) must be the same if both are to be used: the elasticity of substitution between them is infinite, and any price difference will lead to all consumers choosing the cheaper. An indifference curve between them is a straight line.

Are Coke and Pepsi perfect substitutes?

Some examples of indifference curves a. 3 shows the indifference curves for Coke and Pepsi. This consumer considers them to be perfect substitutes, which are goods that a consumer sees as being completely equal and capable of taking the place of the other and being equally well off.

Are perfect substitutes strictly monotonic?

Perfect substitute indifference curves are consistent with monotonicity.

What is perfect substitutes and perfect complement?

The defining criterion for perfect substitutes is that marginal rate of substitution (MRS) is constant. The example of complementary goods we saw before was right and left shoes. One has no use for one without the other. This fact causes the indifference curves to become L-shaped (see Figure 3.5).

What is the difference between perfect and imperfect market?

Imperfect markets are characterized by having competition for market share, high barriers to entry and exit, different products and services, and a small number of buyers and sellers. Perfect markets are theoretical and cannot exist in the real world; all real-world markets are imperfect markets.

What is perfect competition in economics?

What Is Perfect Competition? In economic theory, perfect competition occurs when all companies sell identical products, market share does not influence price, companies are able to enter or exit without barrier, buyers have perfect or full information, and companies cannot determine prices.