Substitute goods: Substitute goods are those goods which can be used in place of each other to satisfy a given want, e.g., Tea and Coffee, Ghee and Refined oil. In case of substitute goods, an increase in the price of one good causes an increase in the demand of the other good. For example, an increase in the price of coffee, causes an increase in the demand for tea. Thus, there is a positive relation between price of a substitute and the demand for the given good.
Complementary goods: Complementary goods are those goods which are used together to satisfy a given want. They are demanded jointly, e.g., car and petrol, pen and ink. In case of complementary goods, an increase in the price of one good causes a decrease in the demand of the other good. For example, an increase in the price of petrol, causes a decrease in the demand for car. Thus, there is an inverse relation between the price of a complementary good and demand for the given good.