Answer to Question #185006 in Microeconomics for taym

Question

Compare the following two pairs of goods:

• Coke and Pepsi

• Skis and ski bindings

a. In which case are the two goods complements? In which case are they substitutes?

b. In which case do you expect the indifference curves to be fairly straight? In which case do you expect the indifference curves to be very bowed?

c. In which case will the consumer respond more to a change in the relative price of the two goods?

Answer 1

a. In which case are the two goods complements? In which case are they substitutes?

Skis and ski bindings are complements

Coke and Pepsi are substitutes

b. In which case do you expect the indifference curves to be fairly straight? In which case do you expect the indifference curves to be very bowed?

As the indifference curves are fairly straight for substitutes, we expect fairly straight indifference curves for Coke and Pepsi.

The indifference curves are very bowed for compliments, thus we expect very bowed indifference curves for Skis and ski bindings.

c. In which case will the consumer respond more to a change in the relative price of the two goods?

Consumers respond more to a change in the relative price of substitutes. Thus, the response to relative price change would be more in the case of Coke and Pepsi.