question_answer

With the help of a diagram, explain this property of Indifference Curve (1C) 'High 1C offers higher level of satisfaction'.

or

Differentiate between substitute goods and complementary goods.

 

Answer:

The property 'Higher 1C offers higher level of satisfaction' can be explained with the given figure below:     Good X At both the points A (on lower\[I{{C}_{1}}\]) and B (on higher\[I{{C}_{2}}\]), consumer has on level of Good Y. But at point A, consumer has OD level of Good X and at point B, consumer has\[O{{D}_{1}}\], level of Good X i.e. at point D, consumer has has \[D{{D}_{1}}\]\[(O{{D}_{1}}-OD)\]more of Good X.                                                            By monotonic preferences, we know that more of a good gives more satisfaction i.e. in graph, at point B consumer get more satisfaction. Hence, we can conclude that 'Higher1C offers higher level of satisfaction?. Difference between substitute goods and complementary goods are:      

Basis	Substitute Goods	Complementary Goods
Meaning	Substitute goods may be used in place of each other.	Complementary goods are used together.
Relation with price	If the price of a commodity increases, quantity demanded of its substitute commodity will increase and vice ? versa.	If the price of a commodity increases, demand for its complementary commodity will decrease and vice- versa.
Example	Tea and coffee, coke and cold drink are the best example of substitute goods.	Car and petrol, sugar and milk are best examples of complementary goods.