Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
An essential economic principle is whether goods are substitutes or complements in consumption. Substitute goods are alternatives for each other. When Johnny chooses either a bologna or a peanut butter sandwich for his lunch box, bologna and peanut butter are substitutes. If the price of peanut butter increases, the cost of the peanut butter sandwich increases, and Johnny is more likely to choose the relatively cheaper bologna.
Economists call goods that go together complementary goods. Johnny typically has his peanut butter sandwich with grape jelly and his bologna sandwich with mustard. For Johnny, peanut butter sandwiches and grape jelly are complements, and bologna sandwiches and mustard are complements. If mustard prices rise, Johnny is less likely to buy bologna and more likely to choose the peanut butter and jelly lunch.
Some goods are naturally complements, such as automobiles and automobile tires or eyeglasses and eyeglass lens cleaners. Other goods are complements because of the tastes and preferences of particular populations. One can imagine a population that puts mustard on their peanut butter sandwiches and smears grape jelly on their bologna sandwiches. Most people who imbibe alcoholic beverages think beer and whiskey are substitutes. On the other hand, diehard Purdue grads view them as complements when they concoct their boilermaker by dropping a shot of whiskey into their beer.
Sometimes, the relationship between goods is surprising and subtle. A recent article in the Economist magazine pointed out that our ever-ubiquitous cellphones have killed off the market for regular digital cameras. Camera-enabled cellphones and low-quality digital cameras are substitutes. In 2011, when an interviewer asked world-class professional photographer Annie Leibovitz to recommend a camera, she took out her iPhone 4s, calling it “the snapshot camera of today.” The quality of phone cameras keeps getting better. Sales of digital cameras have fallen 93%, and entry-level digital cameras are “disappearing from the market.”
However, premium camera sales are rising. When Leica released its Q3 in 2023, it had a six-month waiting list. A Fujifilm x100 camera sold out when launched earlier this year and sells online for a premium of its original $1,600 price. We saw several on eBay at around $2,150. Cellphones have made amateur photography more universal, generating a new generation of photographers who want to take their hobby to a new level. High-end digital cameras and camera-enabled cell phones are complements. Economic relationships are fascinating and often surprising!•
__________
Bohanon and Horowitz are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.
Please enable JavaScript to view this content.