Question

a. Orange juice and apple juice are known to be perfect substitutes. Draw the appropriate priceconsumption curve (for a variable price of orange juice) and income-consumption curve. b. Left shoes and right shoes are perfect complements. Draw the appropriate price-consumption and income-consumption curves.

Short answer

The price-consumption curve for perfect substitutes (apple juice, orange juice) is a downward sloping line; as price changes, the consumer buys more of the cheaper product. The income-consumption curve is parallel to the price-consumption curve; as income increases, the consumer buys more of the products. For perfect complements (left shoe, right shoe), the price-consumption curve is a right angle starting from the axes, and so is the income-consumption curve is a series of right angles starting at the origin, showing that the products are bought together in fixed amounts.

Step-by-step solution

Draw Price-Consumption Curve for perfect substitutes

On a graph with quantity of orange juice on the x-axis and quantity apple juice on the y-axis, draw a downward sloping line starting at a point on the y-axis. This line represents the bundles of orange and apple juice that the consumer can buy as the price of orange juice varies. This line is downward sloping because as the price of orange juice decreases, the consumer can afford to buy more of it.

Draw Income-Consumption Curve for perfect substitutes

On the same graph with quantities of apple and orange juice, the income-consumption curve is a line parallel to the price-consumption line. The position of the income-consumption curve is determined by the consumer's income level. As the consumer's income increases, the bargains shift outwards parallel. This is because with more income, the consumer can buy more of both juices.

Draw Price-Consumption Curve for perfect complements

In a graph similar to the one we used for perfect substitutes, a price-consumption curve for perfect complements like left and right shoes is a right angle that connects a point on the y-axis with a point on the x-axis. This indicates that the consumer buys the shoes in a 1:1 ratio regardless of price changes.

Draw Income-Consumption Curve for perfect complements

On the same graph with the number of shoes pairs on both axes, the income-consumption curve for perfect complements is a series of right angles starting at the origin and extending outward. Each right angle corresponds to a higher income level and reflects that the consumer buys more shoe pairs as income increases, again in a fixed 1 to 1 ratio (left to right).