Complementary and Substitute Goods

Economic goods are classified as either "complementary" or "substitute" based on how the use of one good is related to the use of another.

Complementary goods have a positive relationship, meaning that an increase in the consumption of one good leads to a rise in the consumption of the other.

Example: A classic example of complementary goods is coffee and sugar. These two goods are typically used together, which is why they are considered complementary.

In contrast, substitute goods have an inverse relationship. When the consumption of one good goes up, the use of its substitute usually declines. These goods are perfect alternatives to each other.

Example: A common example of substitute goods is coffee and tea. As consumption of coffee increases, tea consumption tends to decrease, and vice versa.