Editing Substitute good (section)

====Perfect substitutes====

Perfect substitutes refer to a pair of goods with uses identical to one another.<ref>{{Cite web|title=perfect substitute|url=https://www.oxfordreference.com/view/10.1093/oi/authority.20110803100317991|access-date=2021-04-28|website=Oxford Reference|language=en}}</ref> In that case, the [[utility]] of a combination of the two goods is an increasing function of the sum of the quantity of each good. That is, the more the consumer can consume (in total quantity), the higher level of utility will be achieved, see figure 3.

Perfect substitutes have a [[linear utility]] function and a constant [[marginal rate of substitution]], see figure 3.<ref>{{Cite book|last1=Besanko|first1=David|url=https://books.google.com/books?id=978PKop7Cp8C&pg=PA92|title=Microeconomics|last2=Braeutigam|first2=Ronald|date=2010-10-25|publisher=John Wiley & Sons|isbn=978-0-470-56358-8|edition=4th|pages=92|access-date=20 August 2019}}</ref> 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).<ref name=":4">{{Cite web|title=Substitute goods |first1=Valentino |last1=Piana |date=2005 |url=http://www.economicswebinstitute.org/glossary/substitute.htm|access-date=2020-10-20|website=Economics Web Institute}}</ref> Let a consumption bundle be represented by (X,Y), then, a consumer of perfect substitutes would receive the same level of utility from (20,10) or (30,0).

Consumers of perfect substitutes base their rational decision-making process on prices only. Evidently, the consumer will choose the [[Cheapness|cheap]]est bundle to maximise their profits.<ref name=":4" /> If the prices of the goods differed, there would be no demand for the more expensive good. Producers and sellers of perfect substitute goods directly compete with each other, that is, they are known to be in direct [[price competition]].<ref name=":3">{{Cite web|title=What are substitute goods? Definition and examples|url=https://marketbusinessnews.com/financial-glossary/substitute-goods-definition-meaning/|access-date=2020-10-13|website=Market Business News|language=en-US}}</ref>

An example of perfect substitutes is butter from two different producers; the producer may be different but their purpose and usage are the same.

Perfect substitutes have a high cross-elasticity of demand. For example, if [[Country Crock]] and Imperial margarine have the same price listed for the same amount of spread, but one brand increases its price, its sales will fall by a certain amount. In response, the other brand's sales will increase by the same amount.