Question

explain why the changes in the prices of complements and substitutes affect demand.

Answer 1

Substitute goods are two alternative goods that could be used for the same purpose.Ex- tea and coffee

Complementary goods are goods that are usually consumed together to provide utility. Ex- car and petrol

Let us take the example of substitutes

If coffee is considered as a substitute for tea. If there is an increase in the price of coffee, then quantity demanded for coffee will fall since it has become more expensive now but at the same time tea's demand will rise because in comparison to coffee , tea's price are lower.  

Now take the example of complements

If petrol is considered as a complement for car. If there is a decrease in the price of petrol, then quantity demanded for petrol will increase because it is cheaper now. At the same time the demand for cars will also rise since petrol is cheaper , therefore people will prefer to go more by car.