Individual Demand

Substitutes and Complements

1) The two goods are considered substitutes if an increase (decrease) in price of one lead to an increase (decrease) in quantity demanded of other.

• For example movie tickets and video rentals

2) Two goods are considered complements if an increase (decrease) in price of one leads to a decrease (increase) in quantity demanded of other.

• For example gasoline and motor oil

3) Two goods are independent when change in price of one good has no effect on the quantity demanded of the other

-If the price consumption curve is sloping downward, the two goods are considered substitutes.

-If price consumption curve is sloping upward, the two goods are considered complements.

*They could be both!