August 29, 2015

Substitute Goods

This means a good's demand is increased when the price of another good is increased. Conversely, the demand for a good is decreased when the price of another good is decreased. That is people search for cheaper alternative. These Goods are in complete Contrast with Complement Goods, Giffen Goods, Veblen Goods (What are Complement Goods, Giffen Goods &  Veblen Goods?)

Characteristics of Substitute Goods:
Born from concept of Competition.
They can serve the same purpose/use.
Provide needs in Many Ways to Consumers.

They provide freedom to choose and pressure goods to supply at reasonable price.
The increased demand for one of the goods will subsequently cause a decrease in demand for the other. For examples, If  X and Y are substitutes if, when the price of X rises, the demand for Y rise.
They have positive cross elasticity of demand.

Examples of Substitute Goods in Economy:
a) Pepsi & Coca Cola Drinks
b) Coffee and Tea

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