Complementary Goods

Complementary goods are economic goods that are used together to satisfy a specific need. For example, sugar complements coffee, meaning that if the price of sugar goes up, consumers may reduce their demand for both sugar and coffee. Another example is gasoline and cars: a sharp increase in gasoline prices can lead to a drop in car sales. When the prices of complementary goods change, the demand curve shifts to the right or left. For instance, if sugar becomes more expensive, the demand curve for coffee (its complementary good) shifts to the left.

For complementary goods, the demand curve moves to the left if the price of one good rises, and to the right if the price drops. With perfect complements, the consumption ratio is fixed. These goods are consumed together in set proportions. In such cases, the indifference curve between the two complementary goods takes on an L-shape, forming a right angle.

For perfect complements, the marginal rate of substitution is infinite. The two goods, A and B, are only useful together. A classic example is a pair of shoes: a single shoe is of no use to the consumer, but together they fulfill a need. Although this example helps explain the concept, it's important to note that complementary goods don’t always have to be in a one-to-one ratio like shoes. The key is that the ratio remains fixed. For example, two teaspoons of sugar for every cup of coffee.

In a broader sense, most goods can be considered complementary, as no single good can fully satisfy all human needs. To achieve a higher quality of life, people need to consume a variety of goods to meet different needs. This is reflected in the typical convexity of indifference curves (convexity axiom) for normal economic goods (those that aren’t strictly complementary). For instance, food needs to be paired with water to meet the human need for both eating and drinking. Eating without drinking, or drinking without eating, won’t provide the same level of satisfaction.