Complement (Economics)

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Definition of Complements:

Complements are goods or services that are frequently used together.

Detailed Explanation:

Congratulations! Your first computer just arrived in the mail. You turn it on, and realize your computer did not come with the software you need. You also need  a printer and an internet connection. If the sale of computers increases, it is very probable the sale of software, printers, and Internet services will also increase. This is because computers and all of these amenities are complements. If the demand for a product increases, the demand for its complements also increases. 

Theater tickets and babysitting services are complements. Suppose the Smiths love the theater. They have a child, so whenever they attend a play they must hire their babysitter, Jane. The graphs below illustrate the relationship between ticket prices and the demand for Jane's babysitting. When ticket prices were $40, the Smiths attended four plays. The theater has a promotion and drops the price of advanced purchases to $25. The Smiths choose to increase the numbers of tickets they buy to ten. In this case the quantity demanded increased from four to ten because of a change in the price of tickets. Jane does not adjust her price, but the demand for her services increases because the Smiths need Jane to babysit six more times. (Jane could increase her price if she has other clients like the Smiths and sees a large increase in demand.) There is an outward shift in the demand for Jane's babysitting.

Peanut butter and jelly are complements. A favorite for kids, these two items are rarely found on separate aisles in grocery stores. This is because sellers know that sales of one impact sales of the other. If peanut butter prices fall, consumers will purchase more peanut butter. This means, consumers will also need more jelly to go with the peanut butter. The demand for jelly has increased at all prices. When the price of a good decreases, the demand for all of its complements will increase. Conversely, if the price of a good increases, the demand for its complements will decrease. 

Gillette has taken advantage of the complementary relationship between razors and blades for decades. Gillette is a brand of men's razors. They sell their razors at a low price to entice users to purchase their razors. the razors and blades are complements. Purchase a razor, and the demand for the blades increases. 

Dig Deeper With These Free Lessons:

Changes in Demand – When Consumer Tastes Change
Demand – The Consumer's Perspective
Supply and Demand – When Producers and Consumers Reach Agreement
Understand A Stock's Performance Using Supply and Demand

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