What are Substitutes and Complements?
We can learn the association between the quantity of a commodity that a customer picks and the cost of a related commodity. The quantity of a commodity that the customer picks can rise or come down with the increase in the cost of a related commodity relying on whether the two commodities are complementary or substitutes to each other.
Commodities which are utilised collectively known as complementary goods. Instances of commodities which are supplement to each other incorporate coffee and sugar, shoes and socks, etc. Since coffee and sugar are utilised together, a rise in the cost of sugar is likely to decrease the demand for coffee and a decrease in the cost of sugar is likely to raise the demand for coffee. Similar is the case with other supplements.
In general, the demand for a commodity moves on the contrary direction of the cost of its complementary commodities. In contrary to supplements, commodities like coffee and tea are not utilised together. In fact, they are alternatives to each other.
Since coffee is a substitute for tea, if the cost of tea increases, the customers can move to coffee; hence, the utilisation of coffee is likely to rise. On the other hand, if the cost of tea comes down, the consumption of coffee is likely to decrease. The demand for a commodity usually moves in the direction of the cost of its alternatives.
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