Question

The Marginal Rate of Substitution (MRS) between perfectly substitute goods remains constant. Explain with diagram.

Hint:

Perfect substitutes trade at a fixed ratio everywhere, so MRS never diminishes -- giving a straight-line indifference curve.

Answer 1

Step 1: Define perfect substitutes:
Two goods are perfect substitutes when the consumer is willing to exchange them for one another at a fixed, constant ratio, regardless of how much of each good is already held — e.g. a consumer who values one red pen exactly the same as one blue pen, always trading 1-for-1.

Step 2: Define MRS and apply it here:
MRS(X for Y) is the rate at which a consumer is willing to give up Y to get one more unit of X while staying on the same indifference curve (same satisfaction). For perfect substitutes, since the trade-off ratio never changes no matter the combination held, $MRS_{XY}$ stays the same constant number along the whole indifference curve.

Step 3: Consequence for the indifference curve shape:
Because the slope of the indifference curve (which equals $-MRS_{XY}$) never changes, the indifference curve for perfect substitutes is a straight (linear) downward-sloping line, not the usual convex curve.

Step 4: Diagram description:
Draw Good X on the horizontal axis and Good Y on the vertical axis. The indifference curve $IC_1$ is a straight line running from a point high on the Y-axis down to a point far on the X-axis, with a constant negative slope throughout — unlike the usual bowed-in (convex) shape drawn for normal indifference curves.

Final Answer:
For perfect substitutes the exchange ratio never changes, so MRS is constant along the indifference curve, which is why that indifference curve is a straight line rather than convex.