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Question
Distinguish between substitute goods and complementary goods, with examples.
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Solution
The difference between substitute goods and complementary goods is given as follows:
| Basis | Substitute Goods | Complementary Goods |
| Definition | Substitute goods refer to those goods that can be consumed in place of each other. | Complementary goods refer to those goods that are consumed together. |
| Relationship with Price | In the case of substitute goods, if the price of one good increases, the consumer shifts his demand to the other (substitute) good i.e. rise in the price of one good results in a rise in the demand of the other good and vice-versa. | In the case of complementary goods, if the price of one good increases then a consumer reduces his demand for the complementary good as well, i.e. a rise in the price of one good results in a fall in demand of the other good and vice-versa. |
| Examples | Tea and coffee, Colgate and pepsodent, cello pens and Reynolds pen | Tea and sugar, ink pen and ink, printer and paper |
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