What is Complementary Goods in Economics
Complementary Goods Definition
Goods that add value to another goods is called Complementary goods. In other words, the two goods that the consumer uses together. For example a zinger burger and a zinger, and a tea and a milk.
On some events, the complementary good is absolutely necessary, as is the case with petrol and a car. However, a complementary good can add value to the initial product. For example, pancakes and maple syrup.
Complimentary Goods have a negative connection with each other – which means that when price of product A increases, demand for product B decrease. This is because fewer people buy product A due to the higher price. As a result, fewer people are also buying product B, which only adds value to product A. In economic, this is known as ’negative cross-elasticity of demand’.
Let us consider a Wireless Printer. If its price increases by 10 percent, this may lead to lower levels of demand. At the same time, if fewer people are buying wireless printer, then there are also fewer people buying ink cartridge of wireless printer. It is because of this relationship that we can consider these as complimentary goods.
There are two types of complementary goods:
- Weak Complimentary Goods
- Strong Complimentary Goods
Weak Complementary Goods
Weak complementary goods respond to increases in prices in a very limited way. In other words, they are not reactive to increases in prices of complimentary goods. However, there is some relationship between the two.
If we take French Fries and Tomato Ketchup as an example – here there are two complementary goods. Consumers may use tomato ketchup with French fries, but they may also use other liquid ketchup. For instance, consumers may use Chilli sauce or Mayonnaise instead. Therefore, whilst tomato ketchup is used to complement French fries, there are many other alternatives that make the relationship between the two weak complimentary goods.
If the price of tomato ketchup increases by 10 percent, but the demand for French fries falls by 1 percent, the relationship is therefore weak. This is because the price increase of the complimentary product has minute effect on the demand on the other.
Strong Complementary Goods
Strong Complimentary Goods have a close relationship with each other. That is to say that one good is conditional or required on the other to add value. For example, we have a DVD and a DVD player. These are known as strong complementary goods because they are pretty useless without one another.
The relationship between strong complimentary goods is very elastic. In other words, when the price of DVD players rise, the demand for DVDs is likely to fall. So we can say there is a ‘negative cross-elasticity’ between them.
Complementary Goods Graph
As we can see from the graph below; when the price of a Wireless Printer decreases, the demand for Cartridge of printer increases.
This is because the demand for wireless printer increases as more consumers are buying it at the lower prices. In turn, those same consumers are demanding cartridge of printer– which translates into high sales.
10 Complementary Goods Examples
Complemintary goods are goods which trust on each other to add value. There are a large number of complementary goods which are necessary in order for the other to work. For example,
- French Fries and Tomato Ketchup
- Mobile Phones and Sim Cards
- Dvd Player and Dvd
- Petrol and Cars
- Burger Buns and Burger
- Tennis Racket and Tennis Ball
- Shoes and Insoles
- Popcorn and Movies
- Pencils and Notebooks
- PlayStation and Games
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