Question

Difference between complementary goods and substitute goods in economy

Answer 1

Answer:

1. Substitute goods are independent to each other while as complementary goods are inter-dependent.

2. If the price of one good increases, the demand of its substitute good increases while on the other hand if the price of good increases, the demand its complementary good decreases.

3. Cross elasticity of the substitute goods will be positive while as cross elasticity of complementary goods is negative.

4. Tea and Coffee is an example of substitute goods while as car and petroleum is an example of complementary goods.

5. Complementary goods are mostly sold in combination while as substitute goods are mostly sold in singularity.