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Definition of Complementary goods

Babylon English Dictionary

commodities for which change in the demand for one of them brings the same rate of change in another
Complementary goods Definition from Social Science Dictionaries & Glossaries
A Glossary of Political Economy Terms
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]

Complementary goods Definition from Encyclopedia Dictionaries & Glossaries
Wikipedia English - The Free Encyclopedia
In economics, a complementary good is a good with a negative cross elasticity of demand, in contrast to a substitute good. This means a good's demand is increased when the price of another good is decreased. Conversely, the demand for a good is decreased when the price of another good is increased. If goods A and B are complements, an increase in the price of A will result in a leftward movement along the demand curve of A and cause the demand curve for B to shift in; less of each good will be demanded. A decrease in price of A will result in a rightward movement along the demand curve of A and cause the demand curve B to shift outward; more of each good will be demanded.

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