What is the difference between substitute and complement

We're assuming that these other things aren't changing. Now, what would happen if these things changed? Well, imagine we have, say, other ebooks-- books is price-- price goes up. The price of other ebooks go up. So what will that do to our price quantity demanded relationship? If other ebooks prices go up, now all of a sudden, my ebook, regardless of what price point we're at, at any of the price points, my ebook is going to look more desirable. So if this were to happen, that would actually shift the entire demand curve to the right.

So it would start to look something like this. That is scenario one. And these other ebooks, we can call them substitutes for my product. So this right over here, these other ebooks, these are substitutes.

People might say, oh, you know, that other book looks kind of comparable, if one is more expensive or one is cheaper, maybe I'll read one or the other. So in order to make this statement, in order to stay along this curve, we have to assume that this thing is constant. If this thing changes, this is going to move the curve. If other ebooks prices go up, it'll probably shift our curve to the right. If other ebooks prices go down, that will shift our entire curve to the left.

So this is actually changing our demand. I — Solution T. II — Solution T. Grewal 12 Class. Leave a Reply Cancel reply Your email address will not be published. Substitute Goods. Complementary Goods. These are the goods that can be used in place of another for the satisfaction of specific want. These are the goods that are used together to satisfy a specific want.

In the case of these goods, there is always a positive relationship between the price of a commodity and the quantity demanded. There is always an inverse relationship between the price of the commodity and the quantity demanded of these goods. Important Solutions Question Bank Solutions Time Tables Advertisement Remove all ads. Distinguish Between.

Distinguish between substitute goods and complementary goods, with examples. Key Differences Between Substitute Goods and Complementary Goods The points given below are important so far as the difference between substitute goods and complementary goods is concerned: Goods that are perceived by the consumer as the same, such that they can be used instead of one another and provide the same level of satisfaction, are called Substitute Goods.

On the other hand, goods that are used by the consumer together and are of no use when consumed alone, are called Complementary Goods. While goods that are substituted have competitive demand, goods that are complements experience joint demand. When there is an increase decrease in the price of a related product leads to a rise fall in the quantity demanded of the main product, then the goods are said to be substitutes.

So we can say that substitute goods have a direct relationship between them. On the other hand, when the reduction hike in the price of a related good, results in an increase decrease in the quantity demanded of the main product, then the goods are said to be complements. Hence, complementary goods have an inverse price and demand relationship. The cross-price elasticity of demand in case of substitutes is positive , because the rise in the price of a commodity increases the demand for another commodity, and causes the curve to shift right.

But, the cross-price elasticity of demand in case of complements is negative. This is due to the fact that the rise in the price of a commodity decreases the demand for another, which leads to a leftward shift. In the case of substitute products, the demand curve is upward sloping , whereas, in the case of complementary goods, the demand curve is downward sloping. Substitute goods, for instance, tea and coffee are independent of each other, i. As against, complementary goods, for example, bread and butter, are interdependent on each other, which means that they are used along to satisfy a particular want.

Comments This is very helpful.