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The quantity of a good that the consumer chooses can increase or decrease with the rise in the price of a related goods depending on whether the two goods are substitutes or complementary to each other. Goods which are consumed together are called complementary goods. Examples of goods which are complement to each other include tea and sugar, shoes and socks, pen and ink, etc. Since tea and sugar are used together, an increase in the price of sugar is likely to decrease the demand for tea and decrease in the price of sugar is likely to increase the demand for tea. Similar is the case with other complements. In general, the demand for a good moves in the opposite direction of the price of its complementary goods.

The goods which can be used in place of each other are called ?

Solution

Correct Option: 3

Substitute goods are those that can be used in place of each other to satisfy the same want (e.g., tea and coffee). They are interchangeable, so a rise in the price of one increases the demand for the other. Complementary goods are consumed together, not interchangeably.

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