Substitute goods, for instance, tea and coffee are independent of each other, i.e. they can individually capable of satisfying a particular want. As against, complementary goods, for example, bread and butter, are interdependent on each other, which means that they are used along to satisfy a particular want.

Substitute Goods are those goods which are used in place of one another to fulfill a specific need or want. For example, Coke and Coca-Cola. Complementary Goods are those goods which are used together to fulfill a specific need or want. For example, TV and remote.

A substitute good is a good that serves the same purpose as another good for consumers. For example, butter and margarine are substitutes for each other as they both serve the same purpose of being a spread for bread or toast. Complementary goods are products that are consumed together to enhance the value or utility of each other.

Only if the two products satisfy the three conditions, will they be classified as close substitutes according to economic theory. The opposite of a substitute good is a complementary good, these are goods that are dependent on another. An example of complementary goods are cereal and milk. An example of substitute goods are tea and coffee.

Goods like peanut butter and grape jelly are complements: they are generally consumed together, for example in PB&J sandwiches. Goods like strawberry jam and grape jelly are substitutes: they generally serve the same purpose. Goods like t-shirts and jelly are independent goods: there’s no obvious relationship between them.