What happens when two goods are complements?
When two goods are complements, they experience joint demand - the demand of one good is linked to the demand for another good. Therefore, if a higher quantity is demanded of one good, a higher quantity will also be demanded of the other, and vice versa.
If two commodities are complements then as the price of one increased the quantity of the other one decreases and vice versa, thus due to thus negative relationship the cross elasticity of demand is always negative.
Complementary goods will have a negative cross elasticity of demand. If the price of one good increases, demand for both complementary goods will fall. The more closely linked the goods are, the higher will be the cross elasticity of demand.
The prices of complementary or substitute goods also shift the demand curve. When the price of a good that complements a good decreases, then the quantity demanded of one increases and the demand for the other increases.
It possesses a negative cross elasticity of demand where increasing the price of one good brings down the demand of the other. These are usually consumed together, and thus fluctuation in prices of complementary goods will generally shift the demand curve.
In economics, a complementary good is a good whose appeal increases with the popularity of its complement. Technically, it displays a negative cross elasticity of demand and that demand for it increases when the price of another good decreases.
A Complementary good is a product or service that adds value to another. In other words, they are two goods that the consumer uses together. For example, cereal and milk, or a DVD and a DVD player. On occasion, the complementary good is absolutely necessary, as is the case with petrol and a car.
When two goods are complements, the cross-price elasticity will be negative.
We determine whether goods are complements or substitutes based on cross price elasticity - if the cross price elasticity is positive the goods are substitutes, and if the cross price elasticity are negative the goods are complements.
two goods are complements if a decrease in the price of one good causes an increase in the demand for the other. a good is normal if a decrease in income causes a decrease in demand for the good.
Are complements positive or negative?
| If the sign of cross elasticity of demand is... | the elasticity range | the goods are |
|---|---|---|
| negative | −∞ | perfect complements |
| negative | (−∞，0) | highly or somewhat complements |
| 0 | 0 | unrelated goods (neither complements or substitutes) |
| positive | (0, +∞) | somewhat or highly substitutes |
