<blockquote>
<p>According to the definition of complementary goods, this means that the demand of good B should decrease. But intuitively speaking, shouldn't increasing demand for good A also increase demand for B?</p>
</blockquote>
<p>Thank you for the question!</p>
<p>My guess is that you're having trouble reconciling the notion of 'joint demand' between two goods with the negative cross-price elasticities that characterize complementarity. I also think that you might be making a few implicit assumptions about timing that might confound your intuition, which isn't helped by the fact that you might be confusing the difference between shifts and movements up/down the demand curve. As an example, let's consider the joint demand/supply dynamics for petrol and cars. For simplicity, presume that the car market is characterized by a homogenous good.</p>
<p>For whatever reason, let's assume the demand for petrol increases. You're absolutely right that this would lead to an increase in the equilibrium price for petrol. Conditional on the price of petrol rising, would you expect demand for cars to subsequently increase or decrease? Worded differently - How do you think consumer demand for cars would react to a price increase in the oil market, presuming that consumers exhibit elastic preferences for cars in the first place?</p>
<p>When thinking through negative price elasticities, timing is very important. Elasticities generally reflect changes in demand <em>following</em> a variation in price. So it's natural to think of cars and petrol as complements, given the decrease in car demand that follows an increase in petrol prices.</p>
<p>When you refer to &quot;intuition&quot; in the block quote above, I think you're thinking about the fact that complementarity also imbues a 'joint demand' characteristic between two products. While an increase in overall demand (from income changes, structural shifts in preferences) shifts the demand curve for petrol up and to the right,  An increase in petrol prices results in a leftward (or 'upward') movement on the demand curve (NOT a shift), restricting the quantity demanded. This movement up the petrol demand curve shifts the demand curve for cars left/inward, as a lower quantity is demanded at each price point.</p>
<p>Does this help?</p>

CC BY-SA 4.0
2024-10-06T15:18:29.587Z
To answer "How do you think consumer demand for cars would...", would it decrease, solely based on the price increase and no other factors?
vbxr
CC BY-SA 4.0
2024-10-06T15:22:45.677Z
I'm still having a little trouble following your point on timing. Is this a causation problem, where an increase in petrol prices *causes* a decrease in car demand, not vice versa?

Also, in your last paragraph, you say that a movement to the left on the demand curve for petrol results in a shift left in the demand curve for cars. I think I'm still having a little misunderstanding because I still don't understand what happens when demand for petrol *shifts*, not *moves along the curve*.

Sorry for the misunderstanding, I'm still a little new at this 
vbxr
CC BY-SA 4.0
2024-10-06T03:44:20.217Z
2024-10-06T03:44:20.217Z
Working_Hieronymous
<p>This is probably a misunderstanding on my part, but I've been taught that complementary goods A and B are defined if increasing the price of good A causes the demand for good B to decrease, and vice versa.</p>
<p>But now consider what happens when the demand of good A increases. In the long term, the equilibrium price of good A increases. According to the definition of complementary goods, this means that the demand of good B should decrease. But intuitively speaking, shouldn't increasing demand for good A also increase demand for B?</p>
<p>Also, we're now saying that the equilibrium quantity demanded of good A increases while the equilibrium quantity demanded of good B decreases. If they are complement goods, wouldn't a consumer want to buy more of <em>both</em> goods?</p>
<p>Is this a misunderstanding on my part relating to equilibrium/the definition of complement goods/something else?</p>

<supply-and-demand><equilibrium>
Paradox involving complement goods
vbxr
# Paradox involving complement goods

(Asked by: username_0 on 2024-10-05)

This is probably a misunderstanding on my part, but I've been taught that complementary goods A and B are defined if increasing the price of good A causes the demand for good B to decrease, and vice versa.

But now consider what happens when the demand of good A increases. In the long term, the equilibrium price of good A increases. According to the definition of complementary goods, this means that the demand of good B should decrease. But intuitively speaking, shouldn't increasing demand for good A also increase demand for B?

Also, we're now saying that the equilibrium quantity demanded of good A increases while the equilibrium quantity demanded of good B decreases. If they are complement goods, wouldn't a consumer want to buy more of *both* goods?

Is this a misunderstanding on my part relating to equilibrium/the definition of complement goods/something else?

**Tags:** supply-and-demand, equilibrium


---

## 1 answers

### Answer by username_1 on 2024-10-06. Score: 0

> According to the definition of complementary goods, this means that the demand of good B should decrease. But intuitively speaking, shouldn't increasing demand for good A also increase demand for B?

Thank you for the question!

My guess is that you're having trouble reconciling the notion of 'joint demand' between two goods with the negative cross-price elasticities that characterize complementarity. I also think that you might be making a few implicit assumptions about timing that might confound your intuition, which isn't helped by the fact that you might be confusing the difference between shifts and movements up/down the demand curve. As an example, let's consider the joint demand/supply dynamics for petrol and cars. For simplicity, presume that the car market is characterized by a homogenous good.

For whatever reason, let's assume the demand for petrol increases. You're absolutely right that this would lead to an increase in the equilibrium price for petrol. Conditional on the price of petrol rising, would you expect demand for cars to subsequently increase or decrease? Worded differently - How do you think consumer demand for cars would react to a price increase in the oil market, presuming that consumers exhibit elastic preferences for cars in the first place?

When thinking through negative price elasticities, timing is very important. Elasticities generally reflect changes in demand *following* a variation in price. So it's natural to think of cars and petrol as complements, given the decrease in car demand that follows an increase in petrol prices.

When you refer to "intuition" in the block quote above, I think you're thinking about the fact that complementarity also imbues a 'joint demand' characteristic between two products. While an increase in overall demand (from income changes, structural shifts in preferences) shifts the demand curve for petrol up and to the right, An increase in petrol prices results in a leftward (or 'upward') movement on the demand curve (NOT a shift), restricting the quantity demanded. This movement up the petrol demand curve shifts the demand curve for cars left/inward, as a lower quantity is demanded at each price point.

Does this help?

> **Comments:**
> **username_0**: To answer "How do you think consumer demand for cars would...", would it decrease, solely based on the price increase and no other factors?  
> **username_0**: I'm still having a little trouble following your point on timing. Is this a causation problem, where an increase in petrol prices *causes* a decrease in car demand, not vice versa?  Also, in your last paragraph, you say that a movement to the left on the demand curve for petrol results in a shift left in the demand curve for cars. I think I'm still having a little misunderstanding because I still don't understand what happens when demand for petrol *shifts*, not *moves along the curve*.  Sorry for the misunderstanding, I'm still a little new at this   

---

