Question

What are the 5 differences between substitute goods and complementary goods?

Answer 1

Two goods (A and B) are complementary if using more of good A requires the use of more good B. Two goods (A and B) are substitutes if using more of good A replaces the use of good B. Under substitute goods, Increase in the price of one good will decrease the consumption of that particular good and demand for another good increases. Complementary goods are interdependent whereas the substitute goods are independent. Cross elasticity of complementary goods is negative whereas cross elasticity of the substitute goods will be positive.