Substitute Goods

label Referate autorenew 2025-09-29, 16:57
In terms of demand, substitute goods are those that provide the same basic satisfaction of a want or need when consumed. In terms of supply, substitute goods are those that use the same resource for production in an exclusionary manner. A substitute good is one of the two ways that goods are related. The other is a complement good.



Goods can be substitutes in terms of consumption or production.
- Substitutes-in-Consumption: Two or more goods that satisfy the same wants or needs. Consuming one good means that buyers have no need to consume another.
- Substitutes-in-Production: Two or more goods that can be produced using the same resources. Producing one good prevents sellers from using resources to produce another.
On the Consumption Side
Buyers are frequently faced with the decision to purchase one good or another. Each good provides the same basic satisfaction of wants and needs. Buy one or buy the other, but not both.
The need for food can be satisfied by consuming pizza or fried chicken. The need for transportation can be satisfied by buying a sport utility vehicle or a motorcycle. The desire for entertainment can be satisfied by watching a movie or attending a live theatrical performance.
The price of a substitute-in-consumption is part of the other prices demand determinant. A change in the price of a substitute-in-consumption causes a change in demand and a shift of the demand curve. An increase in the price of one substitute good causes an increase in demand for the other. A decrease in the price of one substitute good causes a decrease in demand for the other.