Distinguish between substitute goods and complementary goods. Give two examples of each.
Distinguish between substitute goods and complementary goods. Give two examples of each.
Substitute goods: Substitute goods are those goods which can be used in place of each other to satisfy a given want. e.g., tea and coffee, ghee and refined oil. In case of substitute goods, an increase in the price of one good causes an increase in the demand of the other good. An increase in the price of coffee, for example, causes an increase in the demand for tea. Thus, there is a positive relationship between price of a substitute good and the demand for that good.
Complementary goods: Complementary goods are those goods which are used together to satisfy a given want. They are demanded jointly, e.g., car and petrol, pen and ink. In case of complementary goods, an increase in the price of one good causes a decrease in the demand of the other good. An increase in the price of petrol, for example, causes a decrease in the demand for car. Thus, there is an inverse relationship between the price of a complementary good and demand for that good.
Substitute goods: Substitute goods are those goods which can be used in place of each other to satisfy a given want. e.g., tea and coffee, ghee and refined oil. In case of substitute goods, an increase in the price of one good causes an increase in the demand of the other good. An increase in the price of coffee, for example, causes an increase in the demand for tea. Thus, there is a positive relationship between price of a substitute good and the demand for that good.
Complementary goods: Complementary goods are those goods which are used together to satisfy a given want. They are demanded jointly, e.g., car and petrol, pen and ink. In case of complementary goods, an increase in the price of one good causes a decrease in the demand of the other good. An increase in the price of petrol, for example, causes a decrease in the demand for car. Thus, there is an inverse relationship between the price of a complementary good and demand for that good.
