What happens to demand for a complementary good when the price of its pair increases?

What happens to demand for a complementary good when the price of its pair increases?

• A. Increases
• B. Decreases
• C. Stays the same
• D. Varies unpredictably

Answer: (B)

When two goods are complements, they’re typically used together. If the price of one good goes up, buying the pair becomes more expensive, so people buy fewer bundles. That reduces the quantity demanded of the complementary good even if its own price hasn’t changed. A quick way to see it is that the cross-price effect for complements is negative: higher price for one good lowers demand for its partner. For example, if the price of printers rises, fewer printers are bought, and demand for printer cartridges falls. If the price of the first good falls, demand for its complement would rise.

When two goods are complements, they’re typically used together. If the price of one good goes up, buying the pair becomes more expensive, so people buy fewer bundles. That reduces the quantity demanded of the complementary good even if its own price hasn’t changed. A quick way to see it is that the cross-price effect for complements is negative: higher price for one good lowers demand for its partner. For example, if the price of printers rises, fewer printers are bought, and demand for printer cartridges falls. If the price of the first good falls, demand for its complement would rise.