If two goods are perfect substitutes, then
A) the marginal rate of substitution is constant.
B) the indifference curves are straight lines.
C) the indifference curves are "L-shaped."
D) both a) and b) are true.

Question

Quizplus · Accepted Answer

If two goods are perfect substitutes, it means that they can be used interchangeably by consumers without any change in satisfaction or utility. In such a case, the marginal rate of substitution (MRS) is constant because the consumer is willing to give up a fixed amount of one good to obtain an additional unit of the other. This implies that the shape of the indifference curve is a straight line because the slope remains constant along the curve. Therefore, both a) and b) are true for perfect substitutes.

If Two Goods Are Perfect Substitutes, Then