Complementary And Substitute Flashcards
(20 cards)
What are complementary goods?
Goods that are consumed together, where the demand for one increases the demand for the other.
What are substitute goods?
Goods that can replace each other, where the demand for one increases as the price of the other increases.
True or False: An increase in the price of a complementary good will decrease the demand for its complement.
True
Fill in the blank: When the price of a substitute good rises, the demand for the original good tends to ______.
increase
What is the relationship between the demand for complementary goods?
They have a direct relationship; as the demand for one increases, the demand for the other also increases.
Give an example of a pair of complementary goods.
Peanut butter and jelly.
Give an example of a pair of substitute goods.
Butter and margarine.
What happens to the demand curve of a good when the price of its complement increases?
The demand curve shifts to the left (decreases).
True or False: If two goods are substitutes, a decrease in the price of one will lead to an increase in demand for the other.
False
What effect does an increase in consumer income typically have on the demand for normal complementary goods?
It increases the demand for both goods.
How do cross-price elasticities of demand relate to complementary goods?
For complementary goods, the cross-price elasticity of demand is negative.
How do cross-price elasticities of demand relate to substitute goods?
For substitute goods, the cross-price elasticity of demand is positive.
What term describes the situation when two goods are used together?
Complementarity
What term describes the situation when two goods can replace each other?
Substitutability
True or False: An increase in the price of a substitute good will decrease the demand for the original good.
False
What is the impact on demand for complementary goods when consumer preferences shift towards one of the goods?
Demand for both complementary goods will likely increase.
Multiple choice: Which of the following is NOT typically considered a complementary good to a car? A) Gasoline B) Insurance C) Public Transport
C) Public Transport
What happens to the equilibrium price and quantity of a good when the demand for its complement increases?
Equilibrium price and quantity both increase.
What does an outward shift in the demand curve indicate about complementary goods?
It indicates an increase in demand for both goods.
When analyzing demand, what does a positive cross-price elasticity signify?
That the goods are substitutes.
