Two goods are consumed together; when the price of one rises, demand for the other falls. These goods are called

• A. Substitutes
• B. Independent goods
• C. Complementary goods
• D. Normal goods

Answer: (C)

Complementary goods are goods that are often consumed together. The key idea is that the demand for one responds to the price change of the other. When the price of one rises, the overall cost of using both goes up, so people buy less of both; the demand for the other falls. This negative relationship across prices distinguishes complements from substitutes, which rise in demand for one when the other becomes more expensive, and from independent goods, which don’t affect each other. It’s also separate from normal goods, which are about how demand changes with income rather than the price relationship between two goods.