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AFC: The abbreviation for average fixed cost, which is fixed cost per unit of output, found by dividing total fixed cost by the quantity of output. Average fixed cost is one of three related cost averages. The other two are average variable cost and avarage total cost. Average fixed cost decreases with larger quantities of output. Because fixed cost is FIXED and does not change with the quantity of output, a given cost is spread more thinly per unit as quantity increases. A thousand dollars of fixed cost averages out to $10 per unit if only 100 units are produced. But if 10,000 units are produced, then the average shrinks to a mere 10 cents per unit.
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                           COMPLEMENT-IN-CONSUMPTION: One of two (or more) goods that provide satisfaction of a want or need when consumed together. A complement-in-consumption is one of two alternatives falling within the other prices determinant of demand. The other is a substitute-in-consumption. An increase in the price of one complement good causes a decrease in demand for the other. A complement-in-consumption has a negative cross elasticity of demand. Complements-in-consumption are two or more goods that satisfy wants or needs when consumed jointly. Satisfaction is greater when both goods are consumed together than when they are consumed separately. Buying and consuming either good by itself is not quite as satisfying as both goods combined. In many cases, if both complement goods cannot be consumed, then neither will be purchased. Buy both, or buy neither. The need for food can be satisfied by consuming a hamburger and french fries. The need for transportation can be satisfied by buying a sport utility vehicle and gasoline. The desire to play golf can be satisfied by purchasing golf clubs and golf balls. Satisfaction is less if only one of each pair is consumed. The price of a complement-in-consumption is part of the other prices demand determinant. A change in the price of a complement-in-consumption causes a change in demand and a shift of the demand curve. An increase in the price of one complement good causes a decrease in demand for the other. A decrease in the price of one complement good causes an increase in demand for the other. Shifting the Demand CurveTo illustrate this process consider two bits of complementary sporting equipment--golf clubs and golf balls. While can be used in its own right, when consumed together they enable a satisfying round of golf. Complement-in-Consumption
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How is the demand for golf balls affected if the price of golf clubs should change?- A Higher Price: Suppose the price of golf clubs increases. Golf-playing consumers making a recreational decision will undoubtedly react according to the law of demand and decrease the quantity demanded of golf clubs. However, when they purchase fewer golf clubs, then are also inclined to want and need less golf balls. The result is a decrease in the demand for golf balls and a leftward shift of the demand curve. Click the [Price Increase] button to demonstrate.
- A Lower Price: Suppose the price of golf clubs decreases. Golf-playing consumers will also react according to the law of demand, but in this case they increase the quantity demanded of golf clubs. And as they purchase more golf clubs, then are also inclined to want and need more golf balls. The result is an increase in the demand for golf balls and a rightward shift of the demand curve. Click the [Price Decrease] button to demonstrate.
Cross ElasticityClassifying a good as a complement-in-consumption is accomplished in a precise manner using the cross elasticity of demand. The cross elasticity of demand is the relative response of the demand for one good to changes in the price of another good. More specifically, it is the percentage change in the demand of one good due to a percentage change in the rice of another good. A complement-in-consumption is then one with a cross elasticity that is negative, or less than zero. In comparison, an substitute-in-consumption has a positive, or greater than zero, cross elasticity.
Recommended Citation:COMPLEMENT-IN-CONSUMPTION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: April 17, 2024].
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