Concept of Substitutes and Complements Video Lecture | SSC CGL Tier 2 - Study Material, Online Tests, Previous Year

in this video we're going to discuss
substitutes and complements in economics
so the idea behind substitutes and
complements is that a change in the
price of one good can actually affect
demand for a different good and it
depends on whether the two goods are
substitutes or complements so for
example let's take a bus ticket and
we're thinking about a bus to get your
thing about taking a trip but you could
also take a train right so you could
also get a train ticket so if we're
thinking about the demand for bus
tickets and there's an increase in the
price of train tickets so then people
will say okay well train tickets are
increasing in price I'm going to
increase my demand for bus tickets I'd
rather ride the bus because the Train is
getting more expensive right so if we
have the increase in the price of a
substitute that will increase demand for
something like the bus ticket now if
there's a decrease in the price of a
substitute let's say the train tickets
actually became cheaper then that's
going to decrease demand for the good in
this case a decreased demand for a bus
ticket now a complement a complement is
kind of like the opposite it's two
things that you would normally consume
together for example you might think
about spaghetti and pasta sauce right so
you're going to have pasta and you're
then you're going to have sauce and
you're usually going to have them
together right you're not just going to
have one you're going to have the two of
them in combination so if pasta sauce is
so if the price of pasta sauce were to
increase so if that were to increase in
price that would decrease demand for
pasta think about it if you went to the
store and pasta sauce had tripled in
price you would probably buy less pasta
and then the opposite is also true right
if pasta sauce were to become a lot
cheaper then you would actually increase
your demand for pasta because you're
buying the two of them together they're
complements
I want to show you I want to sketch out
for you the demand just to show you how
this would work so let's take a couple
Goods here let's think first about Pole
and then we'll think about the demand
for peanut butter but let's think about
the demand for Cole
so what happens if the price of natural
gas were to decrease if natural gas
became a lot cheaper for whatever reason
well natural gas and coal can both be
used to keep people's homes so they are
substitutes so natural gas is a
substitute for coal
so if natural gas suddenly becomes a lot
cheaper that is going to decrease the
demand for coal so what's going to
happen as natural gas becomes cheaper so
people start heating their homes with
natural gas instead of coal so the
demand curve for coal is going to shift
to the left there's going to be a
decrease in demand for coal now let's
think about peanut butter in the u.s. I
don't know about your country but in the
United States peanut butter and jelly
are commonly consumed together on a
sandwich we'd have a sandwich called the
PB&J sandwich PB&J peanut butter and
jelly sandwich it's very common thing
that people eat particularly kids so if
we think about the demand for peanut
butter and we say that there is a
decrease in the price of jelly if
parents are going to the store they're
looking for some of the buy for their
kids lunch and they say wow jelly got a
lot cheaper well what is that going to
do to the demand for peanut butter well
because they normally buy these together
they buy peanut butter and jelly at the
same time if jelly gets a lot cheaper
that's actually going to increase demand
for peanut butter so we see what we'd
have the demand curve would actually
shift to the right for peanut butter and
we'd have a new demand curve here d2 so
we see that as it was this is a
complement right so we would say that
jelly is a complement to peanut butter
because people consume them together so
we see that the price of a related good
whether it be natural gas related to
coal or how jelly is related to peanut
butter or pasta and pasta sauce the
price of one good when that changes that
can actually affect the demand for an
entirely different good