Question

Distinguish between substitute goods and complementary goods, with examples.

Answer 1

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