Substitute, Complementary Goods, and Marginal Utility

Marginal utility

the satisfaction effect or usefulness of purchasing a unit or item of a good or service. As the satisfaction or usefulness begins to diminish, the marginal utility begins to diminish, and is referred to as diminishing marginal utility. For example, a hungry consumer may purchase a snack, and if still hungry, wants to purchase a second unit of the snack. However, as hunger is satisfied, the usefulness of the item decreases, therefore, the desire to purchase another unit of the snack decreases.

substitute goods

A substitute good replaces another good for the consumer and has an effect on demand. Another way to look at the substitution effect is the purchase of an unrelated good because of price. For example, if a particular good is offered at a sale price, consumers may decide to purchase more of that item instead of purchasing items they normally would have purchased. The item that was not purchased becomes an opportunity cost and the item purchased is considered a substitute good.

Complementary Goods

Complementary goods are goods that are often purchased because of the purchase of another good. For example, during summer, consumers purchase more hot dogs and hamburger for grilling. As a result, demand for ketchup, mustard, and buns increase because of the demand of hot dogs and hamburger. Also, when demand for hot dogs and hamburger decreases, demand for the complementary goods also decreases.