Question

a. Orange juice and apple juice are known to be perfect substitutes. Draw the appropriate price consumption 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

a. The price consumption and income consumption curves for orange and apple juice are given below.

b. The price consumption and income consumption curves for left and right shoes are given below.

Step-by-step solution

Perfect Substitutes and Perfect Complements. 

Perfect substitutes are the goods that can be used in place of one another, for example, tea and coffee. At the same time, perfect complements are the goods that are used together only and cannot be used without each other, such as a lock and key.

Explanation for part (a)

• The price consumption curve for orange and apple juice is as follows.

The graph given above shows apple juice on the x-axis and orange juice on the y-axis. The consumer will use apple juice only if the price of apple juice is less than the orange juice and would buy orange juice only if the price of orange juice is less than the price of apple juice; this is because both the juices are perfect substitutes for one another.

Corresponding to this behavior, the price consumption curves will lie along the axis only as depicted in the graph; however, if both the juices' prices are equal, the consumer will allocate their expenditure accordingly.

• The income consumption curve for orange and apple juice is as follows.

The graph above shows apple juice on the x-axis and orange juice on the y-axis. Given the budget constraint and different levels of satisfaction depicted by the consumer's U1, U2, and U3, the graph shows the income consumption curve along the x-axis, assuming the prices of oranges are less than the prices of apples and the consumer buys oranges only.

Explanation for part (b)

• The price consumption curve for left and right shoes is as follows.

The graph given above shows the right shoe on the y-axis and the left shoe on the x-axis. For perfect complements, the indifference curves are L-shaped;therefore, the price consumption curves are drawn.

• The income consumption curve for left and right shoes:

The graph given above shows the right shoe on the y-axis and the left shoe on the x-axis. The income consumption curve will also be a straight line sloping upward corresponding to the L-shaped indifference curves.