Question

What is the of supply curve in complementary goods?

Answer 1

In economics, a complementary goods or complement is a goods with a negative cross elasticity of demand, in contrast to a substitute goods.[1] This means a good's demand is increased when the price of another goods is decreased. Conversely, the demand for a goods is decreased when the price of another goods is increased.[2] If goods A and B are complements, an increase in the price of A will result in a leftward movement along the demand curve of A and cause the demand curve for B to shift in; less of each goods will be demanded. A decrease in price of A will result in a rightward movement along the demand curve of A and cause the demand curve B to shift outward; more of each goods will be demanded. Basically this means that since the demand of one goods is linked to the demand of another goods, if a higher quantity is demanded of one goods, a higher quantity will also be demanded of the other, and if a lower quantity is demanded of one goods, a lower quantity will be demanded of the other. The prices of complementary goods are related in the same way: if the price of one goods rises, so will the price of the other, and vice versa. With substitute goods, however, the price and quantity demanded of one goods is related inversely to the price and quantity demanded of a substitute goods, meaning that if the price or quantity demanded of one goods rises, the price or quantity demanded of its substitute will fall.

When two goods are complements, they experience joint demand. For example, the demand for razor blades may depend upon the number of razors in use; this is why razors have sometimes been sold as loss leaders, to increase demand for the associated blades.[3]

Recent work in food consumption has elucidated the psychological processes by which the consumption of one goods (e.g., cola) stimulates demand for its complements (e.g., a cheeseburger, pizza, etc.). Consumption of a food or beverage activates a goal to consume its complements: foods that consumers believe would produce super-additive utility (i.e., would taste better together). Eating peanut-butter covered crackers, for instance, increases the consumption of grape-jelly covered crackers more than eating plain crackers. Drinking cola increases consumers' willingness to pay for a voucher for a cheeseburger. This effect appears to be contingent on consumers' perceptions of what foods are complements rather than their sensory properties.