When are two goods considered complements?

Two goods are considered complements when a change in the price of one good affects the demand for the other good in a specific way. In particular, when the price of one good decreases, it makes that good more affordable, which often leads to an increase in the quantity demanded of both goods that are used together. For instance, if the price of coffee falls, the demand for sugar may increase as people tend to consume more coffee and therefore desire more sugar to accompany it.

This relationship hinges on the idea that complements enhance each other's utility when consumed together. As the price of one complement decreases, consumers are more likely to purchase both items, resulting in a higher overall demand for the complementary good. This interplay reflects the positive correlation in their demand driven by price changes.

While understanding this dynamic, it's important to recognize that the other options do not accurately describe the relationship between complements. For example, a situation where a decrease in the price of one good leads to a decrease in the demand for the other would indicate that the goods are substitutes instead of complements. The notion of goods being identical does not inherently denote a complementary relationship, and an increase in the price of one good leading to decreased demand for the other typically implies competition rather than complementarity.