October 20, 2010

Complementary vs. Substitute Goods

The relationship of goods whether complementary or substitute goods are defined on one good in the relationship moves or behaves with changes in quantity consumed of the other.

Complementary goods are goods related in such a way that an increase in the consumption of one, holding the consumer’s satisfaction level and the quantity consumed of the other constant, increases the marginal rate of substitution of the other for money.

Substitute goods are goods related in such a way that a change in the consumption of one, holding the consumer’s satisfaction level and quantity consumed of the other constant, decreases the marginal rate of substitution of the other for money.

An additional note: Normal goods are goods that consumption of which increases as a consumer’s income increases

No comments:

Post a Comment