Question

What happens to the price and demand for substitute and compliment products?

Answer 1

Substitute Goods : When one goods is used as a substitute to satisfy the need for an another goods, then those two goods are known as substitute goods. These two goods are used for the same purpose by the consumers. For example, coffee and tea, car and jeep.

Complimentary Goods : when more than one good is required to satisfy a want, such goods are called complementary goods. ie; both the goods are consumed together and cannot be used individually. For example, pen and ink, shoes and socks.

What happens to the price and demand for substitute goods : If the price of a substitute commodity increases, then the demand for the orginal commodity will also increase. On the other hand, when the price of the substitute commmodity falls, the demand for the orginal commodity will decrease. For example, if the price of tea falls, the demand for coffee will decrease. This is because buyers of coffee will buy les of it and more of tea.

What happens to the price and demand for complementary goods : In the case of complementary goods, if the demand of the orginal commodity increases ( due to the fall in price or change in other factors ), the demand of complementary goods will also increase. Similarly, if the demand of original commodity decreases ( due to rise in price or change in other factors ), the demand of complementary goods also will decrease. For example, if the demand for pen decreases, the demand for the ink also will decrease.