What is the difference between complement and substitute




















Report Error Is there an error in this question or solution? Share 0. Select a course. My Profile. My Profile [view full profile]. Inform you about time table of exam. The law of demand tells us that more of good A will be purchased by moving down the demand curve.

In other words, the quantity demanded for good A will increase. Since goods A and B are complementary, more good A requires the use of more good B. But the price of good B has not changed. So more good B would be bought only if the demand for good B increases by shifting to the right. A price increase in good A, on the other hand, will lead to a decrease in quantity demanded for good A and a decrease in demand for good B. Change in expected future prices and demand.

Changes in income, population, or preferences. Normal and inferior goods. Change in demand versus change in quantity demanded. Lesson summary: Demand and the determinants of demand. Next lesson. Current timeTotal duration Google Classroom Facebook Twitter. Video transcript We've talked a little bit about the law of demand which tells us all else equal, if we raise the price of a product, then the quantity demanded for that product will go down.

Common sense. If we lower the price, than the quantity demanded will go up, and we'll see a few special cases for this. But what I want to do in this video is focus on these other things that we've been holding equal, the things that allow us to make this statement, that allow us to move along this curve, and think about if we were to change one of those things, that we were otherwise considering equal, how does that change the actual curve?

How does that actually change the whole quantity demanded price relationship? And so the first of these that I will focus on, the first is the price of competing products. So if you assume that the price of-- actually I shouldn't say competing products, I'll say the price of related products, because we'll see that they're not competing.

The price of related products is one of the things that we're assuming is constant when we, it's beheld equal when we show this relationship. We're assuming that these other things aren't changing. The major difference in both terms is that Substitute goods are independent of each other whereas Complementary goods are interdependent on each other. These two types of goods are differentiated on the basis of dependency on each other. Substitute goods are those which can be used in place of each other for the satisfaction of some want e.

There is a direct relationship between the price of substitute goods and given commodity, other things remain constant and vice versa. It implies as the price of substitute goods increases, the quantity demanded of a given commodity starts increasing. For example, If the price of coke increases, it will result in more Qd for Limca as Limca will become cheaper as compared to coke.

Thus the price of substitute goods directly affects the Qd for the given commodity. Complementary goods are those which are used together to satisfy a specific need such as cars and petrol, shoes and polish, pencils and erasers, etc. It implies that as the price of complementary goods rises, the quantity demanded of the given commodity starts declining, other things being constant and vice versa.

For example, as the price of shoes starts increasing, the quantity demanded of polish starts decreasing as they will become expensive when used together.



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