7. Substitutability Aa Aa The following graphs show three possible indifference

Question

7. Substitutability Aa Aa The following graphs show three possible indifference curve maps for goods X and Y based on various degrees of substitutability. Suppose that each of the indifference curve maps corresponds to Eric's tastes for one of the following sets of goods: Running sneakers and walking sneakers Shoes and socks Sneakers and boots GOOD Y GOOD Y GOOD Y U1 U2 1 U2 U1 U2 GOOD X GOOD X GOOD X Complete the table that follows by indicating which graph corresponds to each set of goods. (Note: Use each graph only once.) Set Graph Running sneakers and walking sneakers Shoes and socks Sneakers and boots

Explanation / Answer

The indifference curves are the graphical representation of consumer preference over two goods bundle. The slope of the indifference curve shows the degree of substitutability between the good. The substitutes are two good which the consumer can substitute in consumption. The substitutes have higher rate of substitution between them. The complements are consumed jointly and lower substitutability between them.

In the figure A above X and Y have lower degree of substitutability between them and X and Y are complements. On the other hand figure B represents higher substitutability. Figure C has rate of substitution between these two.

Then in figure A the goods are complement, in B the goods are substitute and in figure C the goods normal good, neither perfectly substitute nor consumed jointly.

The running sneaker and walking sneakers are substitutes, they can perform same task. Thus this belongs to B.

The shoes and shocks are consumed jointly and hence corresponds to figure A.

Finally sneakers and boots are not perfect substitute but have some degree of substitution lower than running and walking sneakers. Then this corresponds to graph C.

To summarize

Set Graph Running sneakers and walking sneakers B Shoes and shocks A Sneakers and boots C

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.