Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 7 Topics for Further Study
Chapter 21 of 36 The Theory of Consumer Choice
Section 9 of 26
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Figure 5 here
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Figure 5 - Perfect Substitutes and Perfect Complements
Panel (a) when two goods are perfectly substitutable, such as nickels and dimes, the indifference curves are straight lines.
Panel (b) when two goods are perfectly complementary, such as left shoes and right shoes, the indifference curves are right angles.
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The shape of an indifference curve shows the consumer's willingness to trade one good for the other.
When the goods are easy to substitute for each other, the indifference curves are less bowed.
When the goods are hard to substitute for each other, the indifference curves are more bowed.
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Consider the two extreme cases
· perfect substitutes
· perfect complements
Perfect Substitutes
Suppose someone offers you the choice of bundles of nickels or dimes.
Most likely you would care only about the total monetary value of each bundle.
You would always be willing to trade 2 nickels for 1 dime, regardless of the number of nickels and dimes in the bundle.
Your marginal rate of substitution between nickels and dimes would be fixed at two to one.
Figure 5 panel (a) indifference curves represent your preferences between nickels and dimes.
Because the marginal rate of substitution is constant the two goods are perfect substitutes.
The indifference curves are straight lines.
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Perfect Complements
Suppose now someone offers you the choice of bundles of shoes.
Some of the shoes fit your left foot, others fit your right foot.
Here, you would probably only care about the number of pairs of shoes.
You judge a bundle by on the number of pairs you could match up from it.
A bundle of 5 left shoes and 7 right shoes means only 5 pairs.
Getting one more right shoe has no value if there is no left shoe for it.
Figure 5 panel (b) indifference curve represents your preferences between right and left shoes.
A bundle with 5 left shoes and 5 right shoes is just as good as a bundle with 5 left shoes and 7 right shoes.
A bundle with 5 left shoes and 5 right shoes is also just as good as a bundle with 7 left shoes and 5 right shoes.
The two goods are perfect complements and the indifference curves are right angles.
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In the real world most goods are neither nickel-dime perfect substitutes nor left shoe-right shoe perfect complements.
Typically, the two goods considered are somewhat substitutable and the indifference curves are moderately inward-bowed.
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