Complementary Goods


Complements are goods that go together, like peanut butter and jelly or printers and ink. You can't have one without the other. Complements are the opposite of substitutes. If the price of a good goes up, the demand for its complement will go down; if the price goes down, the demand for its complement will go up.

You can determine if two goods are complements by calculating the cross elasticity of demand. To calculate this, you take the percentage change in quantity demanded of a good, and divide it by the percentage chance in the price of the other good. If the value is negative, then the two goods are complements. If the value is positive, the goods are substitutes, and if the value is zero or is near zero, then the goods are independent.
external image gbart_gb-w-games.jpg
A Game Boy is nothing without its games. The two are complements.
If the price of a gameboy were to go up, the demand for games would
go down.


Peanut Butter and Jelly are Complementary Goods.

Example Problem

If the Cross Elasticity of two goods is negative, then the goods are:
a) substitues
b) complements
c) independent
d) puppies

Answer: b

Links

Definition of Complementary Goods
More about Complementary Goods
Economics A-Z: Complementary Goods