Substitutes and complements are important for understanding how people buy things. They help shape the demand in the market and how demand changes based on what consumers want.

Let's start with substitutes. These are products that can replace each other. For example, if the price of one substitute goes down, people are likely to buy less of the original product and switch to the cheaper option. This change causes the demand for the original product to go down.

Take tea and coffee as an example. If tea gets cheaper, more people might choose to buy tea instead of coffee. This means the demand for coffee would drop as a result.

Now, let’s talk about complements. These are products that are often used together. When the price of one complement goes down, people usually buy more of both products. A good example is printers and ink cartridges. If printers become cheaper, more people will buy printers, and that means they will also need more ink cartridges. This leads to an increase in the demand for ink cartridges as well.

It’s important to consider how these products relate to one another in the market.

We can also talk about how sensitive the demand for one product is to a price change in another product. This is known as elasticity. If the price of one product goes down and more people buy its substitute, we say these products have a positive relationship. If reducing the price of one product makes people buy more of its complement, that shows a negative relationship.

Understanding these ideas helps businesses anticipate changes in demand based on market conditions and pricing.

In summary, substitutes and complements significantly affect market demand. Knowing how these products relate allows businesses to figure out how to meet consumer needs better, change their marketing plans, and find the right prices to boost sales and profits.