Substitute Goods with Examples Explained Easy

What is Substitute Goods

In economics, substitute goods or services refer to the goods or services that can easily replace with another goods or services by consumers. It is because the goods or services replace with another has similar features, similar taste, etc.

The goods or services to be a substitute for another, should be contributing to a particular relationship with that good. Those relationships can be close, like one brand of tomato ketchup with another, or somewhat further apart, such as coffee and tea.

Substitute goods or services play an important role in the market and are considered a gain for consumers. Due to substitute goods and services in the market, the consumer has more choices to select better which satisfy their need.

Substitute’s goods are chosen when the price of one good increases then demand for other goods increases.

In formal economic language, X and Y are substitutes if demand for X increases when the price of Y increases, or if there is positive cross elasticity of demand.

 

Substitute Goods Example

Nilofer has to buy coca-cola from the market, she went to the market when she asked the price for the coca-cola from the shopkeeper, and in response, the shopkeeper answered the price of coca-cola is $5. Nilofer only has $3 at that time, so she asked to price another substitute of coca-cola, that is, Pepsi. Which cost $3 to buy Pepsi.

Hence, Nilofer purchased Pepsi instead of buying Coca-Cola. Here substitute good for Coca-Cola is Pepsi. This is because people will prefer to lower-cost substitute to the higher-cost one.

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Other examples of substitutes’ goods are listed below:

  • Water Mellon and Dry Mellon
  • Tea and Coffee
  • iPhone and Android Phone
  • Bike and Car
  • Coca Cola and Pepsi

 

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