Complementary Good Relationship

A Complementary Good Relationship is an economic relationship between economic goods with a negative cross elasticity of demand.

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• Example(s):
  • the relationship between entertainment and food.
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• Counter-Example(s):
  • Substitute Good, such as between butter and margerine, and between beef and chicken.
• See: Loss Leader, Economics, Good (Economics), Cross Elasticity of Demand, Substitute Good, Demand Curve#Changes That Decrease Demand, Demand Curve#Changes That Increase Demand.

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References

2016

• (Wikipedia, 2016) ⇒ http://en.wikipedia.org/wiki/complementary_good Retrieved:2016-1-5.
  • In economics, a complementary good or complement 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. Basically this means that since the demand of one good is linked to the demand of another good, if a higher quantity is demanded of one good, a higher quantity will also be demanded of the other, and if a lower quantity is demanded of one good, a lower quantity will be demanded of the other. The prices of complementary goods are related in the same way: if the price of one good rises, so will the price of the other, and vice versa. With substitute goods, however, the price and quantity demanded of one good is related inversely to the price and quantity demanded of a substitute good, meaning that if the price or quantity demanded of one good rises, the price or quantity demanded of its substitute will fall. When two goods are complements, they experience joint demand. For example, the demand for razor blades may depend upon the number of razors in use; this is why razors have sometimes been sold as loss leaders, to increase demand for the associated blades.

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