Complementary Goods

Definition

Complementary goods are products that are consumed together because they enhance each other's value or usefulness. When the price of one complementary good increases, the demand for the other complementary good decreases.

Related terms

Substitute Goods: Substitute goods are products that can be used in place of each other. For example, if the price of coffee increases, some people may switch to drinking tea instead.

Cross Elasticity of Demand: Cross elasticity of demand measures how sensitive the quantity demanded of one good is to changes in the price of another good. It helps determine whether two goods are substitutes or complements.

Joint Demand: Joint demand refers to when two or more goods are demanded together as a result of their relationship. For example, cars and gasoline have joint demand since cars require gasoline to operate.