Question

1. Can a good be both a complement and a substitute at the same time? If so, provide an example. If not, explain why.
2. Within a laissez faire system, the government should only perform those activities that the private sector of the economy is incapable of? What kinds of activities do you think the government ought to legitimately perform in a laissez faire system?

Answer 1

1.) Complementary goods are those goods which are complementary to one another.They are jointly used or consumed.Example .Car ad petrol.There is an inverse relationship between the demand for a good and the price of its complement.

Substitute goods are those goods which satisfy the same demand but can be used in place of one another .Eg. Tea and Coffee.

There is an direct relationship between the product (tea) and the price of its substitute (coffee)

There is no way that two goods can be a complement and a substitute at the same time.

2.) National defense,Taxes,Social security activities like old age pension ,Protection of individual rights ,Protection of market system to make sure that no one is manipulating the markets.These can not be given to the private hands because that will affect the security and welfare of the nation.These are done by the Government.