A Level Economics AQA Practice Exam

What distinguishes complementary goods from one another?

1. They are used independently of each other

2. They are always of equal value

3. When the price of one falls, demand for the other increases

4. They are typically bought in bulk

The correct answer is: When the price of one falls, demand for the other increases

Complementary goods are defined by their relationship in consumption; specifically, when the price of one complementary good falls, the demand for the other complementary good typically increases. This is due to the fact that these goods often serve a joint purpose or are used together, such as cars and gasoline or printers and ink cartridges. When one becomes cheaper, consumers are encouraged to purchase more of it, thereby increasing the quantity demanded for its complement as well, to enhance the overall utility or functionality they derive from using both goods together. Understanding this dynamic highlights that the linkage between complementary goods is fundamentally based on how changes in price affect the interaction of their demand in the market. This relationship is crucial in various economic models and has implications for pricing strategies and market behavior.