1

Lectures in Microeconomics-Charles W. Upton

Perfect Complements and
Substitutes
P
D
Q
P
Pepsi
P
Pepsi
Perfect Complements and
Substitutes
Perfect Substitutes
P
D
Q
The demand for
colas; people drink
Coke or Pepsi,
depending on which
is cheaper.
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
Perfect Complements and
Substitutes
Perfect Substitutes
P
D
Q
P
Pepsi
Note that this is not
a simple shift to the
left or right.
Perfect Complements and
Substitutes
Perfect Substitutes
P
D
Q
P
Pepsi
P
Pepsi
Perfect Complements and
Substitutes
Demand Shifters
P
D
Q
D
2
Perfect Complements and
Substitutes
Perfect Complements
P
Q
The demand for a pair of
shoes
Perfect Complements and
Substitutes
Perfect Complements
P
Q
The demand for a pair of
shoes
P
pair
= P
R
+ P
L
P
L
P
o
Q
o
P
o
- P
L
Demand for a
right shoe
Perfect Complements and
Substitutes
Perfect Complements
P
Q
The demand for a pair of
shoes
P
pair
= P
R
+ P
L
P
L
P
o
Q
o
P
o
- P
L
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.
Perfect Complements and
Substitutes
Q
P
D
Cola
D
Coke, Prices Equal
An Illustration
Perfect Complements and
Substitutes
Q
P
D
Cola
D
Coke, Prices Equal
An Illustration
P
o
Q
o
Q
o
Suppose
Coke and
Pepsi both
charge P
o
and split the
market Q
o
.
3
Perfect Complements and
Substitutes
Q
P
D
Cola
D
Coke, Prices Equal
An Illustration
P
o
Q
o
Q
o
A change in
the price of
Coke alone
will cause a
sharp change
in the quantity
of Coke
demanded.
Perfect Complements and
Substitutes
Q
P
D
Cola
D
Coke, Prices Equal
An Illustration
P
o
Q
o
Q
o
A change in
both prices
will cause a
movement
along the
Red Cola
demand
function.
Perfect Complements and
Substitutes
End
2003 Charles
W. Upton