Talk:Substitute good

how to use income effect and subtitution effect to define prefect substitute??

For perfect substitutes, the indifference curve is linear. It is parallel to the budget constraint if the price ratio is equal to the marginal rate of substitution, so there is no unique tangential point and both goods may be consumed in any combination. If the slopes differ, it is only one good that is consumed. But don't confuse the definition of perfect substitutes with the optimal consumption choice, which are mere implications.

A change in income will be entirely income effect because it is a parallel shift of the budget constraint. A change in price will be entirely substitution effect because everyone will flock to the cheaper good.

It is probably better to define it using Cross Price Elasticity of Demand. The Cross Price Elasticity of Demand for perfect substitutes is positive infinity.

I'm thinking CD's and Cassette's are a lot close to perfect substitute goods than is implied here. Wine and Beer are pretty good substitute goods, and they are pretty different.

A constant marginal rate of substitution does not mean that a price change leads to equal amounts of cola and pepsi consumed before and after the price change. That depends on prices, given that the same budget existed before and after the price change.

Merge

I don't really edit economics articles, but has anyone considered merging this and complement good into substitute and complement goods? They are a closely intertwined topic, and one will usually study the two together. Richard001 09:20, 13 September 2007 (UTC)

Confusion

(1) The discussion of Different Types refers to the partial of X with respect to PsubY, but does not define what X stands for or what PsubY stands for. This may be obvious to those who already understand the subject but it is completely unclear to me. (2) I have no problems understanding math notation, but I suspect that whatever a perfect and a gross substitute are, they can easily be explained in language. Richard.Knox (talk) —Preceding undated comment was added at 22:51, 7 January 2009 (UTC). Continuation - perhaps the meaning of the statement that the partial of X with respect to PsubY > 0 is "Given a pair of goods, if an increase in the price of the first causes an increase in the demand for the second, then the second is considered to be a gross substitute of the first." An advantage in expressing the idea this way (if I have correctly guessed the meanings of the symbols) is that it is accessible to everyone, not merely those who took freshman calculus. Richard.Knox (talk) —Preceding undated comment was added at 02:49, 8 January 2009 (UTC).

Substitute good graph

I added a graph to the entry but it is kidn of small and I cannot exactly figure out to resize it in the article. Sorry I am fairly new to editing wikipedia.