Substitutes and Compliments

Topics: Supply and demand, Consumer theory, Cross elasticity of demand Pages: 1 (512 words) Published: October 25, 2014

Substitutes and ComplementsTaze Vega, Tiffany Orr, Alisabeth Rivers, Kari Aufenkamp ECO/365October 13, 2014J. BayerSubstitutes and ComplementsComplements and substitutes illustrate the differences between changes in quantity demanded versus changes in demand (Living Economics, 2014). Substitutes and complements are important in economy because they give consumers with lower income options. Every product on the marketplace has Substitutes and Complements. Substitutes are similar products consumers might buy if the other is more expensive or a good that a customer may use in place of another (Experimental Economics, 2006). “Complements are goods that are generally purchased hand in hand”; some examples would be automobiles and gas, a washing machine and detergent, A CD player and CD’s. Concepts to Understand

The first concept to understand is that all else being equal the quantity demanded for a product increases when the prices of its complements decrease (Living Economics, 2014). For example, if the price of gas decreases, the demand for automobiles would increase. A rise in the quantity demanded of a substitute will cause the other products’ quantity demanded to fall (Living Economics, 2014). Complementary products’ quantity demanded rising causes the other products quantity demanded to rise as well (Living Economics, 2014). The reason for substitute products is the price fluctuations of goods in the economy. Often, when the price of a product rises then the consumer will choose to buy a substitute that will satisfy the same consumer need. With price being the only deciding factor, purchasing a substitute will change the quantity demand of the consumer good. A complement includes more factors than just the price. Therefore, by changing the quantity demanded (as seen with a substitute), there will be movement along the demand curve. By changing the demand for a product, as seen with a complement, the demand curve shifts in its entirety either to the left (a...


References: xperimental Economics Center. (2006). Cross Price Elasticity. Retrieved from http://econport.org/econport/request?page=man_dev_sill_elasticity_crossLiving Economics. (2014). Compliments and Substitutes (transcript). Retrieved from http://http://livingeconomics.org/article.asp?docId=289
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