Economics, 3rd Edition

Perfect Substitutes 

Suppose that someone offered you bundles of 50 cent coins and 10 cent coins. How 

would you rank the different bundles?

Most probably, you would care only about the total monetary value of each bundle. If so, you would 

judge a bundle based on the number of 50 cent coins plus five times the number of 10 cent coins. In 

other words, you would always be willing to trade one 50 cent coin for five 10 cent coins, regardless of 

the number of coins in either bundle. Your marginal rate of substitution between 10 cent coins and 50 cent 

coins would be a fixed number: 5.

We can represent your preferences over 50 cent coins and 10 cent coins with the indifference curves in 

panel (a) of Figure 5.10. Because the marginal rate of substitution is constant, the indifference curves are 

straight lines. In this extreme case of straight indifference curves, we say that the two goods are