Which phrase best defines complementary goods?

• A. Goods that can be used in place of each other, so an increase in the price of one increases the demand for the other
• B. Goods that are produced by the same firm but sold in different markets
• C. Goods that are non-excludable and non-rivalrous in consumption
• D. Goods that are consumed together, so an increase in the price of one decreases the demand for the other

Answer: (D)

Verified step by step guidance

1. Understand the concept of complementary goods: these are goods that are typically used together, meaning the consumption of one good enhances the consumption of the other.
2. Recognize that when the price of one complementary good increases, it usually leads to a decrease in the demand for the other good because they are consumed jointly.
3. Contrast complementary goods with substitute goods, which are goods that can replace each other; an increase in the price of one substitute good tends to increase the demand for the other.
4. Identify that the phrase 'Goods that are consumed together, so an increase in the price of one decreases the demand for the other' correctly captures the essence of complementary goods.
5. Note that other options describe different economic concepts: goods produced by the same firm but sold in different markets, or public goods which are non-excludable and non-rivalrous, and thus do not define complementary goods.