When two goods are completely interchangeable, they are
The correct answer is Option 1.
Key Points
Perfect substitutes:
- Those good which can be used in place of another good with just the same function is called a perfect substitute for the other good.
- For such goods, if the price of one good increases, the demand for its substitute increases.
- It can be used in exactly the same way as the good or service it replaces.
- It comes into play where the utility of the product or service is pretty much identical.
- They can satisfy the same necessity of consumers in exactly the same way.
Additional Information
- Perfect complements: Goods, which have to be used together to satisfy a want.
- Like bike and fuel.
- Giffen goods: These goods are commonly essentials with few near-dimensional substitutes at the same price levels.
- Demand for Giffen goods rises when the price rises and falls when the price falls.
- E.g: Bread, rice, and wheat.
- Veblen goods:
- They are the goods whose demand increases as the price increases, because of their special nature and appear as a status symbol.
- They are typically high-quality goods.
- They are demanded by prosperous consumers who spend a lot on the utility of the good.
