Substitute and Complementary Goods
Substitute and Complementary Goods
This Demonstration shows the dependence of market demand for a given good (indexed "0") as a reaction to price changes on the other market (indexed "1"), which can be a market for either substitute or complementary goods. Substitute goods are competitive, so an increase in the price of substitutes leads to an increase in demand, and a decrease in their prices reduces demand. The opposite holds true for complementary goods that are, by definition, consumed in conjunction with the given product. This topic is often explained using the cross-price elasticity concept, but it lacks an intuitive dynamic visualization and also hides the difference between demand and quantity of demand.