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.
To know the difference between these two, we must clear the meaning of these terms:
Meaning of Substitute Goods:-
Substitute goods are those which can be used in place of each other for the satisfaction of some want e.g. tea and coffee, coke and limen Soda, etc. 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.
Meaning of Complementary Goods:-
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. there is a negative relationship between prices of complementary goods and quantity demanded of the given commodity. 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. So, the demand for a given commodity is inversely affected by the price of complementary goods.
Chart of Difference between Substitute and Complementary Goods:
|
Basis of Difference |
Substitute |
Complementary Goods |
| Meaning | 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. |
|
Price-Demand Relationship |
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. |
| Cross Demand | The cross demand is positive for these goods. | For these goods, the cross-demand is negative. |
|
Degree of Cross Elasticity |
Less than One. i.e. EY<1 |
Less than zero. i.e. EY<0. |
|
Price Effect |
The increase in the price of a commodity increases the demand for substitute goods and vice versa. | The increase in the price of a commodity decreases the demand for complementary goods and vice versa. |
|
Examples |
Some of the examples are- Chrome and Firefox, Nike and Adidas, Maggi and Noodles, etc. | Some of the examples are- Coffee and cheesecake, Pencils and erasers, shoes and polish, etc. |
Download the chart:-
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Conclusion:
Thus, these goods are considered as related goods which affect the demand for any commodity. The demand for these goods mutually affects the demand for another commodity which is calculated by cross elasticity of demand. The change in demand due to these goods results in the shift in the demand curve of a commodity.
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