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Perfect Substitutes

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PPGPortal > Home > Concept Dictionary > P, Q > Perfect Substitutes
 
Perfect Substitutes

Two goods that a consumer is willing to exchange for one another at a constant rate.

(Dwayne Benjamin, PPG 1002H)

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In the case of perfect substitutes, the consumer is indifferent as to the proportions in which he consumes two goods. The indifference curve for perfect substitutes has a constant slope.

 

For example, imagine an individual who wants to purchase as much beer as he can afford. This consumer does not care whether he has Molson Canadian or Labatt Blue, only that he has as many bottles of beer as possible. In this case, Blue and Canadian are perfect substitutes. This example is illustrated graphically below.

Graphic developed by Dwayne Benjamin

 

In this case, the rate at which the consumer is willing to exchange one good for another is 1:1. The constant rate at which a consumer is willing to trade one good for another, however, need not be 1:1 for the two goods to be perfect substitutes. As long as an individual's marginal rate of substitution is constant for two goods, those goods are perfect substitutes for one another.

     

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