What is complementary good?

In economics, a complementary good or complement is a good with a

negativecross elasticity of demand, in contrast to a substitute good.[1] This
means a good's demand is increased when the price of another good is
decreased. Conversely, the demand for a good is decreased when the price
of another good 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
good 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 good will be demanded. Basically this means
that since the demand of one good is linked to the demand of another good,
if a higher quantity is demanded of one good, a higher quantity will also be
demanded of the other, and if a lower quantity is demanded of one good, 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 good rises, so will the
price of the other, and vice versa. With substitute goods, however, the price
and quantity demanded of one good is related inversely to the price and
quantity demanded of a substitute good, meaning that if the price or
quantity demanded of one good 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]

In consumer theory, substitute goods or substitutes are products that a

consumer perceives as similar or comparable, so that having more of one
product makes them desire less of the other product. Formally, X and Y are
substitutes if, when the price of X rises, the demand for Y rises.

Potatoes from different farms are an example: if the price of one farm's
potatoes goes up, then it can be presumed that fewer people will buy
potatoes from that farm and source them from another farm instead.
There are different degrees of substitutability. For example, a car and a
bicycle may substitute to some extent: if the price of motor fuel increases
considerably, one may expect that some people will switch to bicycles.

What is substitute good?

A substitute good, in contrast to a complementary good, is a good with a

positive cross elasticity of demand. This means a good's demand is increased
when the price of another good is increased. Conversely, the demand for a
good is decreased when the price of another good is decreased.

Example of complementary and substitute good?

Burger King and McDonalds hamburgers are examples of substitute goods

because they satisfy the consumers needs of being served quickly and
eating a relatively inexpensive hamburger. These two goods also satisfy the
positive cross-elasticity component of demand for substitutes. The price of
one chains hamburger has a direct effect on the demand for the others and
vice versa.

Two goods are defined as close substitutes if they exhibit a high cross-
elasticity and weak substitutes if they exhibit a marginal cross-elasticity.
Goods are defined as perfect substitutes if the consumer receives the
exact same utility from the two goods. Therefore, consumer preference plays
a part in the definition of a perfect substitute. Coke and Pepsi may be perfect
substitutes to one consumer because he receives the same satisfaction from
both. However, a different consumer may define Coke and Pepsi as near-
perfect substitutes because he believes one tastes better than the other.

Substitute goods are born from the basic concept of competition. Substitute
goods provide the consumer with the freedom to choose and force the
supplier to innovate and offer a quality product at a reasonable price.