Complementary goods
The economy defined as complementary goods to all those products that need to be consumed other than complements. To satisfy a need, complementary goods can be two or more . Although their ratio is not 1: 1, these goods cannot act separately, at least to satisfy the most important need for which they were created or produced. These assets have a cross-relationship with each other. This means that the price variation of one impacts on the demand of the other. This is called cross elasticity. In the case of complementary goods, this cross elasticity is negative.
It is called real complementary to those groups of two or more properties that act together to meet a particular need for consumers. These goods have a cross demand with each other. That is, when one of the complementary goods increases in price, the demand for the other falls along with that for the first. This is known as the negative cross elasticity of demand. The key to recognizing this type of property is that its acquisition depends on the purchase, also, of the other good.
- Which are?
- features
- Cross elasticity of demand in complementary goods
- Examples
Which are?
In economic terms, complementary goods are those that, to be consumed, need another good. Although we do not have them in mind, there are numerous examples from daily life about this type of property.
Therefore, the demand for these goods conditions that of the goods that complement them. If the price of gasoline rises, there is a retraction in car sales.
Not necessarily, complementary goods are traded in pairs. However, consumption is closely linked. It is also important to note that these goods can be purchased separately on the market.
features
Complementary goods have a cross demand as their main characteristic. The consumer is limited to consuming a complementary good if he does not consume, in addition, another good that complements it.
Therefore, when the price of a certain good rises, the demand falls, causing the demand for the complementary good to fall.
A classic example of this is the automobile and gasoline. The increase in the price of gasoline has a negative impact on the demand for cars. Another example from everyday life is hot dog buns and sausages.
Cross elasticity of demand in complementary goods
This category of consumer goods has a related demand. When a consumer acquires a complementary good, he must consider buying another that complements it.
So, we can imagine that the relationship that exists between the demand for one good and another that complement each other is direct. If the demand for one increases, the demand for the other good will necessarily increase.
In relation to prices, complementary goods have a negative cross elasticity of demand. In simple terms, if the price of a complementary good increases, its demand will fall, as will the demand for the other good.
There is, in economics , what is known as degrees of complementarity . This means that two or more goods do not always complement each other in a direct and equal way. There are degrees in which two or more goods complement each other.
For example, bread and butter are complementary goods. However, the two do not complement each other in a direct way. An increase in the price of bread will cause a fall in its demand. But there will not necessarily be a drop of the same magnitude in the demand for butter. This, because the butter has other uses, in addition to complementing the bread in its consumption.
Examples
- Bread and butter
- Cars and gasoline
- Coffee and sugar
- Appliances and electricity
