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Complementary resource

Definition

A complementary resource is a resource that is used together with another resource in the production process. It has a direct relationship with the primary resource, meaning an increase in the price of one will lead to a decrease in the demand for the other.

Analogy

Think of a hot dog stand where hot dogs and buns are complementary resources. If the price of buns increases, it would make it more expensive for the hot dog stand owner to produce each hot dog, leading to a decrease in their demand for hot dogs.

Related terms

Substitute resource: A substitute resource can be used interchangeably with another resource in production. For example, if hamburgers can be produced using either chicken or beef, chicken and beef are substitute resources.

Supply of complementary resource: The amount of a complementary resource that producers are willing and able to provide at various prices.

Joint demand: Joint demand refers to when two goods are demanded together because they are complements. For example, cars and gasoline have joint demand since cars require gasoline to operate.