Meaning of COMPLEMENTARY GOODS in English

COMPLEMENTARY GOODS

Two products for which the demand schedules are related to each other so that an increase in the price of the first good will cause a leftward shift of the entire demand schedule for the other good(s) -- that is, less of the second good will now be demanded at any given available price of the second good. (By the same token, a decrease in the price of the first good will result in a rightward shift of the entire demand schedule for the other good(s), so that more of the second good will now be demanded at any given available price for the second good.) This complementarity commonly happens when the two goods tend to be consumed or used together in relatively fixed or standardized proportions in at least some of their important uses.

A classic example of complementary consumer goods would be frankfurters and hot dog buns. If a supermarket runs a "special" on hot dog buns, it is predictable that customers will want to buy more frankfurters than they otherwise would at whatever is the posted price of frankfurters -- because the total price of enjoying a frankfurter- on-a-bun sandwich is now lower than before due to the special, leading consumers to consume more of both component products.

A classic example of complementary producers goods would be iron ore and coking coal, the two main raw materials for making steel. If the price of iron ore goes up, raising the steel companies' costs for making any given amount of steel, ceteris paribus , they are apt to cut back on the total quantity of steel they choose to produce. But if they decide to produce less steel, they will now need to buy less coal -- and therefore the amount of coal demanded at any given price of coal will be less than before the iron ore price increase. (The same complementarity with iron ore would also be evident with regard to all the other factors of production besides coal that are used in making steel -- such as labor-hours of steel workers, steel making machinery etc. The demand curve for each of them will shift to the left in response to increases in the price of coal or any of their other complementary goods or services.)

[See also: substitute goods , demand schedule , demand ]

English glossary of political economy terms.      Английский глоссарий политико-экономических терминов.