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Perfect substitutes have a linear utility function and a constant marginal rate of substitution, see figure 3. [7] If goods X and Y are perfect substitutes, any different consumption bundle will result in the consumer obtaining the same utility level for all the points on the indifference curve (utility function). [8]
When an increase in output by one firm raises the marginal revenues of the other firms, production decisions are strategic complements. When an increase in output by one firm lowers the marginal revenues of the other firms, production decisions are strategic substitutes. A supermodular utility function is often related to complementary goods ...
For two goods, fuel and new cars (consists of fuel consumption), are complements; that is, one is used with the other. In these cases the cross elasticity of demand will be negative, as shown by the decrease in demand for cars when the price for fuel will rise. In the case of perfect substitutes, the cross elasticity of demand is equal to ...
The concept of the elasticity of substitution was developed by two different economists, each with their own focus. One of these economists was John Hicks, who defined elasticity of substitution as the change in percentage in the relative number of factors of production used, given a particular change in percentage in relative prices or marginal products.
This tends to be the case if there are sufficiently strong aggregate increasing returns to scale and/or the demand curves for the firms' products have a sufficiently low own-price elasticity. On the other hand, the production decisions are strategic substitutes if an increase in one firm's output decreases the marginal revenues of the others ...
On Wednesday, regular gasoline was going for an average of $3.83 across the country, according to auto club AAA, up five cents from last week and the first time prices have gone up in more than ...
Price of related goods: The principal related goods are complements and substitutes. A complement is a good that is used with the primary good. Examples include hotdogs and mustard, beer and pretzels, automobiles and gasoline. (Perfect complements behave as a single good.) If the price of the complement goes up, the quantity demanded of the ...
Tight refining supply has kept the gap wide between wholesale gasoline futures and retail prices, currently at about $1.25 a gallon, far exceeding the average of 88 cents over the past five years.