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 utilised collectively are known as complementary goods. The instances of commodities supplementary to each other are coffee and sugar, shoes and socks, etc. For example, coffee and sugar are used together. Therefore, an increase in the cost of sugar is likely to decrease the demand for coffee and vice versa. Similar is the case with other supplements.
In general, the demand for a commodity moves in the opposite direction of the cost of its complementary commodities. In contrast to the supplements, the commodities like coffee and tea are not utilised together. They are alternatives to each other.
Coffee is a substitute for tea. If the cost of tea increases, then the customers can move to coffee. Hence, the utilisation of coffee is expected to rise. On the other hand, if the cost of tea decreases, then the consumption of coffee is expected to decrease. The demand for a commodity usually moves in the direction of the cost of its alternatives.
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