What is Complements?
Demand is nothing but a desire backed by ability to buy and willingness to part with your resources. A typical demand function shows the functional relationship between demand of a commodity and its various determinants.
D = f (Px, Pr, Y, T, E)
D = Quantity Demanded
Px = Price of the commodity
Pr = Price of related goods
Y = Income of the consumer
T = Tastes and preferences
E = Expectations
Price of related goods:
This is another important determinant of demand. It relates to the prices of those goods which directly or indirectly affect the quantity demanded of a commodity in question. These goods can either be substitute to a product or complement a product. Price of substitutes and complements both affect demand significantly. Let us understand them one by one;
Complementary goods: These are those goods which are demanded together with the commodity in question. Their utility depends on each other. For example; Car and Petrol, Pen and Ink, Bread and Butter etc.
In case of complementary goods for instance, when price of petrol rises; demand for petrol driven cars comes down. Here it can be concluded that price of a commodity has a positive relationship with quantity demanded of its complement.
There are various factors other than price of the commodity which may affect demand of a commodity in the market. Some such factors are price of related goods (substitutes and compliments), income of the consumer, tastes and preferences of the consumers and expectations in market. When these factors change, it brings a change in demand. Due to these factors demand curve shifts from its original place towards right or left.
A leftward shift in the demand curve is known as decrease in demand whereas a rightward shift in demand curve is termed as increase in demand.
Let us understand this with the help of a diagram;
In the diagram above, we can see that when demand curve shifts towards right form D to D’’; price remains constant but quantity demanded rises from L to L’’. When demand curve shifts to left from D to D’; price remains constant decreasing the quantity demanded in the market. Thus, it can be concluded that shift in demand curve is due to factors other than price of the commodity.
In the above diagram we can see that demand curve completely displaces itself when there is a change in price of complementary goods affects demand for a commodity. A rightward shift signifies increase in demand due to decrease in price of complementary goods. And a leftward shift signifies fall in demand due to rise in the price of complementary goods.
Transtutors.com provides timely homework help at reasonable charges with detailed answers to your Economicsproblems so that you get to understand your assignments or homework better apart from having the answers. Our tutors are remarkably qualified and have years of experience providing Complements homework help or Economics assignment help.