Question

Write distinguish between substitutes goods and complementary goods.

Hint:

Substitute goods satisfy similar needs, while complementary goods are often used together to meet a particular need.

Answer 1

Step 1: Understanding Substitute Goods.
Substitute goods are those goods that can replace each other in consumption. When the price of one good rises, the demand for its substitute increases. For example, tea and coffee are substitutes; when the price of tea increases, the demand for coffee may rise.

Step 2: Understanding Complementary Goods.
Complementary goods are those goods that are used together. An increase in the price of one good leads to a decrease in the demand for its complement. For example, cars and fuel are complementary goods; if the price of cars rises, the demand for fuel may decrease.

Step 3: Conclusion.
Substitute goods fulfill the same need, whereas complementary goods are used together to satisfy a demand.