1. Lectures in Microeconomics-Charles W. Upton Perfect Complements and Substitutes

2. Perfect Substitutes P D Q The demand for colas; people drink Coke or Pepsi, depending on which is cheaper.

3. Perfect Complements and Substitutes Perfect Substitutes P D Q P Pepsi If P Coke > P Pepsi Coke gets none of the demand. If If P coke < P Pepsi, Coke gets it all

4. Perfect Complements and Substitutes Perfect Substitutes P D Q P Pepsi Note that this is not a simple shift to the left or right.

5. Perfect Complements and Substitutes Perfect Substitutes P D Q P Pepsi

6. Perfect Complements and Substitutes Demand Shifters P D Q D’

7. Perfect Complements and Substitutes Perfect Complements P Q The demand for a pair of shoes

8. Perfect Complements and Substitutes Perfect Complements P Q The demand for a pair of shoes P pair = P R + P L PLPL PoPo QoQo P o - P L Demand for a right shoe

9. Perfect Complements and Substitutes Perfect Complements P Q The demand for a pair of shoes P pair = P R + P L PLPL PoPo QoQo P o - P L

10. Perfect Complements and Substitutes Lessons Learned We can tell a lot from demand functions And, to tell the truth, we can tell a lot about demand functions.

11. Perfect Complements and Substitutes Q P D Cola D Coke, Prices Equal An Illustration

12. Perfect Complements and Substitutes Q P D Cola D Coke, Prices Equal An Illustration PoPo QoQo ½Qo½Qo Suppose Coke and Pepsi both charge P o and split the market Q o.

13. Perfect Complements and Substitutes Q P D Cola D Coke, Prices Equal An Illustration PoPo QoQo ½Qo½Qo A change in the price of Coke alone will cause a sharp change in the quantity of Coke demanded.

14. Perfect Complements and Substitutes Q P D Cola D Coke, Prices Equal An Illustration PoPo QoQo ½Qo½Qo A change in both prices will cause a movement along the Red Cola demand function.

15. Perfect Complements and Substitutes End ©2003 Charles W. Upton