Question

State whether the following pairs of goods are complements or substitutes.

1. washing machines and dryers

2. paper towels and napkins

3. birthday cake and candles

4. cloth diapers and disposable diapers

Answer 1

When complementary good price changes then the change in the price and change in the market demand of the related good will move in the opposite direction.

Since two goods which can be used in place of each other, is called substitute goods. There is a positive relation of price of one good and quantity demand of its substitute goods. It means the cross price elasticity of two good is positive.

1.

Since washing machines and dryers are used together. Hence these are example of complements goods.

2.

Since paper towels and napkins can be used in place of each other. Hence these goods are substitute goods.

3.

Since birthday cake and candles are used together. Hence these are example of complements goods.

4.

Since cloth diapers and disposable diapers can be used in place of each other. Hence these goods are substitute goods.