Sunday, October 28, 2012

Goofy Econ Thought of the Day

When two goods are perfect substitutes, the indifference curve is a straight line.  Examples of perfect substitutes might be a red pencil and a blue pencil or two nickles equals one dime.  In the textbook case, a fall in the price of one substitute means that the consumer will only buy the cheaper good.

Are the Kindle Fire and iPad tablets perfect subs.  If so, why don't I buy two and a half Kindles instead?  I reckon that that I have a utility function for the two goods in the form of: U = 3iPad + 4Fire.  I would always prefer the Fire but I reach diminishing marginal utility after the first consumption.

Along the same line, what would my demand function look like?  I offer that my demand curve would be vertical at one fire.  Other demand determinates like income, related goods, and expectations are irrelevant.

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