Differentiate between substitute goods and complementary goods.

Question

Substitute GoodsComplementary Goods(i) These are those goods which can be used in place of each other to satisfy a given...

Accepted Answer

Substitute GoodsComplementary Goods(i) These are those goods which can be used in place of each other to satisfy a given...

Substitute Goods	Complementary Goods
(i) These are those goods which can be used in place of each other to satisfy a given want. Tea and coffee are substitute goods.	(i) These are those goods which are used together to satisfy a given want. They are demanded jointly, i.e. their consumption goes together. Cars and petrol are complementary goods.
(ii) In case of substitute goods, there is a direct relationship between the demand for the commodity and price of its substitute, i.e., increase in price of a commodity will increase demand for its substitutes and decrease in price of the commodity will decrease the demand for its substitutes.	(ii) In the case of complementary goods, there is an inverse relationship between the demand for a commodity and the price of its complementary goods. For example, a rise in the price of petrol will lead to a fall in demand for a scooter and a fall in price of petrol will lead to rise in demand for a scooter.