Substitutes vs. Complements

Hello. During this lesson, we're going to be talking about

substitutes versus compliments.

First, I would like to go over some lesson objectives

with you.

The first objective is that students will be able to

understand the differences between a substitute good and a complimentary

good. Second, students will be able to provide real life

examples of substitutes and complements.

Third, students will be able to understand the thoughts of

consumers when deciding what goods to purchase.

And finally, students will be able to understand how these

goods relate to the laws of supply and the laws

of demand.

First and foremost, let's talk about what these terms mean.

Substitute goods are two alternative goods that can be used

for pretty much the same exact purpose.

Some examples of this, maybe a pizza from Domino's or

pizza from Pizza Hut, an android phone versus an apple

phone or an airplane and a train.

Though an airplane, maybe a quicker form of transportation, a

train will still get you to your desired location and

can also be a much cheaper way of getting from

point A to point B.

Now let's get into the topic of complementary goods.

Complementary goods are goods that are purchased and used together

quite frequently.

Some examples of this maybe peanut butter and jelly cake

better and frosting or pasta and pasta sauce.

The's goods air frequently used together so consumers tend to

buy them together.

And trust me.

Producers and businesses of goods know this to be true,

because who would want peanut butter without jelly or a

delicious cake without frosting?

I know that I definitely wouldn't.

Now we're gonna talk about how these goods are related

to the law of supply and demand.

First, let's hear an example about substitute goods.

So let's say we walk into Wal Mart and we

really want to buy Nestle cookie dough to make a

cookie cake.

We see that the Nestle prices $8.

Little expensive for my liking, at least.

But we look over and we see the Wal Mart

brand is only $5.

What are we most likely going to dio?

I'll give you a second to think about your answer.

Did you say by the Wal Mart brand?

If you did your 100% correct, most consumers are most

likely going to go for the cheaper alternative.

The product is almost identical and at a much lower

price. So who wouldn't want to save some money?

Am I right?

The prices air lowered for a good of similar usefulness

to the consumer, then another good of similar usefulness.

Consumers will most likely purchase the less expensive good as

a substitute.

This could be related to the law of supply and

two, man, because if we see that Nestle cookie dough

is $8 the demand for Nestle cookie dough will definitely

decrease, while the demand for Wal Mart brand cookie dough

will increase since the price point is much lower, a

substitute good replaces another good for the consumer and has

an effect on demand.

Another way to look at this is the purchase of

an unrelated good because of price.

For example, if a particular good is offered at a

sale price, consumers may decide to purchase more of that

one item instead of purchasing items they normally would have

purchased. The item that was not purchased becomes an opportunity

cost, and the item purchased is considered a substitute good.

This can also be called the substitution effect.

When the price of a product increases, consumers are more

likely to switch with similar substitute goods.

Now we're going to talk about complementary goods.

I just want to reiterate that these air goods that

are commonly purchased together we often see these goods purchased

together because the consumption of one good tends to lead

to the consumption of the other.

Good as well.

Let's throw another example out there shall way.

Let's say we take another trip to the grocery store

cause we're feeling super hungry today and we're seriously craving

some cheeseburgers for dinner.

We're walking to the back freezer and food lion, and

while we're walking back there, we pick up some hamburger

buns and throw them in our shopping cart because who

eats a cheese burger without the bun?

Right now it's a little silly.

We eventually get back to the freezer, and we see

that the hamburger price increased by $4.

What? We definitely cannot afford that.

What are we most likely going to dio?

I'll give you another second.

I think of your answer.

If you said put the hamburger buns back on the

shelf, you are most certainly correct.

Since we're not going to be buying the hamburger meat,

we're not going to need those hamburger buns.

If the price of the hamburger meat increases, then we

will also see the demand for hamburger buns decreased due

to the law of demand.

If the demand for one good generates the demand for

the other good, consumers will, usually by more of the

complementary good also, whether or not the price falls.

Similarly, if the price of one good rises and reduces

its demand, it may also reduce the demand for the

complementary good as well.

The topic of complementary goods are one of five topics

that can cause a shift in the demand curve.

These five things include income of the consumer.

If a consumer's income increases or decreases, they will be

more or less likely to buy certain products, tastes and

preferences of the consumer, which are likely to change over

time. Not everyone has the same exact preferences forever.

Number of consumers, expectations about the future.

And last but not least, you guessed it related goods,

which includes substitutes and complements.

If we see an increase in demand, the curve will

move to the right, and if we see a decrease

in demand, the curve will move to the left and

now one more time before a little quiz that I

have for you.

Let's go over the definition of substitute goods and complementary

goods just to make sure we have an ingrained in

our brains.

Substitute goods are two alternative goods that can be used

for pretty much the same exact purpose, and complementary goods

are goods that are purchased and used together.

Now eso kindly ask if you could pause your screen

and go to the short quiz that I made to

test your knowledge.

It should take a few minutes.

I have placed the link to the quiz on my

model submission as well, because I am not sure if

the link was inserted correctly.

Now that you're done with the quiz, I just wanted

to thank you for your time and listening to my

lesson. I hope you enjoyed.

And I hope you were able to adhere to all

of the objectives from the beginning of the lesson.

Once again, let's go over those a little quick.

Students will be able to understand the differences between a

substitute good and a complimentary Good Students will be able

to provide real life examples of substitutes and complements.

Students will be able to understand the thoughts of consumers

when deciding what good's the purchase, and less and certainly

not least, students will be able to understand how these

goods relate to the laws of supply and the laws

of the band.

Thank you so much for your time.

I hope you enjoyed my lesson.

Substitutes vs. Complements

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