Question

What are complementary goods? Explain its impact on demand.

Answer 1

Complementary goods are those goods which are complementary to one another in the sense that they are used jointly or together such as car and petrol, pen and ink etc. There is an inverse relationship between the demand for the good and the price of its complements. For example, an increase in the price of petrol not only causes a decrease in the demand for petrol, but also leads to a decrease in the demand for cars. Thus, in case of complementary goods, an increase in the price of one results in decrease in the quantity demanded of the other, and vice versa.