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

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

Uttar Pradesh UpmspUP Board (UPMSP) Intermediate (Commerce) 2026Subjective· 2mImportance★★★★★

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Concept understanding — Substitute Goods

Let’s start with something you do every day. You walk into a shop to buy a cold drink. You see a bottle of Coke for ₹40 and a bottle of Pepsi for ₹40. You pick one — doesn’t matter which, because they both do the same job: quench your thirst with a fizzy cola. If the shopkeeper tells you Coke is now ₹50, you’ll probably put it down and pick up the Pepsi instead. That instinct — swapping one thing for another when the price changes — is the entire idea behind substitute goods.

The precise meaning

Two goods are substitute goods (or substitutes) when an increase in the price of one leads to an increase in the demand for the other. In other words, they can be used in place of each other. The consumer sees them as roughly similar in purpose, so when one becomes more expensive, they switch to the cheaper alternative.

The NCERT Class-11 Microeconomics textbook (Chapter 3: Demand) puts it clearly: “Substitute goods are those goods which can be used in place of each other for satisfaction of a particular want.” Tea and coffee, butter and margarine, petrol and diesel, a Maruti Suzuki and a Hyundai i10 — all are examples.

Why it matters: the cross-price elasticity

This is where the concept becomes a tool, not just a definition. Economists measure the strength of the substitution relationship using cross-price elasticity of demand. It answers the question: By how much does the demand for good Y change when the price of good X changes?

E_{XY} = \frac{\% \text{ change in quantity demanded of good Y}}{\% \text{ change in price of good X}}

$E_{XY}$ = cross-price elasticity of demand
The numerator is the percentage change in quantity demanded of good Y
The denominator is the percentage change in price of good X

For substitute goods, $E_{XY} > 0$ . A positive sign tells you that when the price of X goes up, the demand for Y goes up (and vice versa). The larger the number, the closer the substitutes — if $E_{XY}$ is very high, consumers treat the two goods as almost identical.

Note

The NCERT textbook does not require you to calculate cross-price elasticity in numerical problems at the Class-11 level, but it introduces the sign convention. You must remember: substitutes → positive cross-price elasticity.

A diagram in words

Imagine a standard demand curve for good Y (say, Pepsi). It slopes downward — price on the vertical axis, quantity on the horizontal. Now, the price of Coke (good X) rises. What happens to the demand curve for Pepsi? It shifts to the right — at every price, consumers now want more Pepsi than before. That rightward shift is the visual signature of substitute goods. If the price of Coke had fallen, the Pepsi demand curve would shift left.

The opposite: complementary goods …

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For perfect substitutes the consumer substitutes one good for the other at a constant rate, so MRS is constant and the indifference curve is a straight line.

The Marginal Rate of Substitution (MRS) of X for Y is the amount of good Y a consumer is willing to give up to get one more unit of good X, while keeping satisfaction unchanged. For most goods the MRS diminishes, giving a convex indifference curve. But for perfect substitutes the case is special.

Meaning of perfect substitutes:

Perfect substitutes are goods that the consumer regards as completely identical in use, so that one can always be replaced by the other at a fixed rate (for example, a one-rupee coin and a one-rupee note, or two identical brands of the same pencil). The consumer cares only about the total number of units, not about which good they come from.

Why MRS is constant:

Because the two goods are regarded as identical, the consumer is always willing to give up the same number of units of Y to get one more unit of X, no matter how many units of X he already has. For example, if he always treats 1 unit of X as equal to 1 unit of Y, then MRS = 1 throughout. The willingness to substitute does not fall as he gets more of X (there is no diminishing MRS). Hence the MRS remains constant.

Shape of the indifference curve: …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

CBSE 2025Set ANNUAL1 markMCQ
$Q. The examples of substitute goods are (A) Tea and sugar (B) Shoes and socks (C) Pen and ink (D) Tea and coffee$
›Reveal solutionSolution

Tea and coffee are substitute goods because one can replace the other, so the answer is (D).

Substitute goods satisfy the same want and can be used in place of each other, so a rise in the price of one raises the demand for the other. Tea and coffee are the textbook example of substitutes. The other pairs are complementary goods, used jointly: shoes with socks, pen with ink, and …

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CBSE 2024Set ANNUAL1 markMCQ
$Q. Elasticity of demand for substitute goods is (A) Zero (B) Positive (C) Negative (D) Always less than unity$
›Reveal solutionSolution

Substitute goods have positive cross price elasticity of demand, so the answer is (B).

In the BSEB Inter Class-12 Economics syllabus, substitute goods (e.g. tea and coffee) can be used in place of each other. When the price of one substitute rises, consumers shift to the other, so the demand for the other good increases. Price and quantity-demanded-of-the-other move in the same direction, giv …

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CBSE 2024Set ANNUAL1 markMCQ
$Q. Goods, which can be alternatively used, are called (A) Complementary goods (B) Substitute goods (C) Comfortable goods (D) None of these$
›Reveal solutionSolution

Goods that can be used alternatively (in place of each other) are substitute goods, so the answer is (B).

In the BSEB Inter Class-12 Economics syllabus, substitute goods are goods that can be used in place of one another to satisfy the same want — for example tea and coffee, or Coke and Pepsi. Complementary goods (A), by con …

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CBSE 2024Set ANNUAL1 markMCQ
$Q. Which of the following is an example of complementary goods? (A) Tea and Coffee (B) Coke and Pepsi (C) Rice and Wheat (D) None of these$
›Reveal solutionSolution

Every listed pair is a set of substitutes, not complements, so the answer is (D).

In the BSEB Inter Class-12 Economics syllabus, complementary goods are used together to satisfy a want (e.g. car and petrol, pen and ink). The pairs given are all substitutes — tea and coffee (A), Coke and Pepsi (B), and rice and wheat (C) can each be used in …

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CBSE 2023Set ANNUAL1 mark
$Q. Fill in the blank: Tea and coffee are just like example of _______ goods.$
›Reveal solutionSolution

Tea and coffee are substitute goods, so the blank is 'substitute'.

Substitute goods are pairs that can be used in place of one another to satisfy the same want. For such goods the price of one and the demand for the other move in the same direction: if coffee becomes dearer, consumers sw …

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CBSE 2023Set ANNUAL1 markMCQ
$Q. Tea and Sugar are :$
(a) Substitute goods
(b) Complementary goods
(c) Luxury goods
(d) None of the above
(a) Substitute goods
(b) Complementary goods
(c) Luxury goods
(d) None of the above
›Reveal solutionSolution

Tea and sugar are complementary goods, consumed together.

Complementary goods are consumed jointly to satisfy a single want — e.g., tea is usually taken with sugar, so the two have an inverse (negative) cross-price relationship: if sugar becomes expensive, demand for tea-with-sugar (and hence tea itself) may also fall. This is the opposite of substitute goods (like tea and coffee), which can replace one another and have a direct (positive) cross-price relationship. Tea and sugar are neither luxury goods (goods dem …

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CBSE 2022Set MARCH1 mark
$Q. In monopoly market, the goods which are sold have no ____________.$
›Reveal solutionSolution

In a monopoly the goods sold have no close substitutes.

Monopoly means a single firm supplies the entire market. A key defining feature is that its product has no close substitutes — there is no other good buyers can readily switch to. This absence of substitutes gives the …

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CBSE 2022Set ANNUAL1 markMCQ
$Q. In following, the example of substitute goods is -$
(a) tea and sugar
(b) shoes and socks
(c) pen and ink
(d) tea and coffee
(a) tea and sugar
(b) shoes and socks
(c) pen and ink
(d) tea and coffee
›Reveal solutionSolution

Tea and coffee are substitutes because either can replace the other to satisfy the same want.

Substitute goods are those that can be used in place of one another — e.g., tea and coffee, as both serve the same purpose of being a hot beverage. If the price of tea rises, consumers switch toward coffee, so demand for coffee rises: substitutes show a direct (positive) relationship between the price of one and the demand for the other. By contrast, tea and sugar, shoes and socks, and pen and ink are all complem …

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CBSE 2020Set ANNUAL1 markMCQ
$Q. Write True or False: Tea and coffee are not complementary goods.$
(a) True
(b) False
›Reveal solutionSolution

True — tea and coffee are substitutes, not complements.

Complementary goods are used jointly (e.g., car and petrol), whereas substitute goods can be used in place of one another. Tea and coffee can replace each other, so they are substitutes, not complements. Therefore the statement ' …

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

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