Elasticity

In: Business and Management

Submitted By bmodlin10
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Pages 3
There are two types of related goods: substitutes and complements. Two goods are substitutes if they satisfy similar needs or desires. Two goods are complements if they are consumed jointly. The demand for a good in a particular market area is related to the number of buyers in the area: more buyers, higher demand; fewer buyers, lower demand. This merged learning team also reviewed pertinent information on the substitute goods and complements goods, and then discussed the importance of each related goods by giving different examples. In the following summary, there are highlight of the results from the group discussion and further explain the sometimes tumultuous, yet necessary relationship and differences between substitutes and complements.
Complements
When two products complement each other, they are called complementary goods. Complementary goods combine to create a greater overall value than each product would have on its own. Consumers may use each good separately but when they do there is little to no value in the product by itself (Colander, 2013). For example, a boat has little value if there is no gasoline to run it. In the same respect, the gasoline would have little value if it just sat in a gas can waiting to be used. Many products complement each other but two that stand out are razors and shaving cream. Both items can be used separately but do a much more effective job when they are combined. Shaving cream helps consumers get a closer shave, moisturize skin, and reduce razor burn. Razors and shaving cream are complementary products because the price of razors has an inverse correlation with the demand for shaving cream. When the price of razors rises, the demand for shaving cream will decrease. Since the products are complements, this is known as cross elasticity. Cross elasticity occurs when the increased cost of one product…...

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