For complementary goods, if the price of one falls, the demand for the other increases. These goods are called

• A. Substitutes
• B. Normal goods
• C. Complements
• D. Inferior goods

Answer: (C)

Complementary goods are used together. When the price of one falls, it becomes cheaper to buy the whole combination, so people buy more of that good and, as a result, more of the other good as well. Demand for the second good rises because they’re typically consumed together. This is why they’re called complements—their demands move together in this way, and the cross-price effect is negative. Substitutes behave oppositely—if the price of one falls, you’d switch away from the other—while normal and inferior describe how demand changes with income, not with the price of a related good.