Substitute+Goods

A **substitute good** is a product or service that satisfies the need of a consumer that another product or service fulfills. For a product to be a substitute of another good, it must share a particular relationship with that good. When a good's price increases, the demand for its substitute will increase because consumers will go looking for a cheaper alternative, visa versa. For example, margarine is a substitute for butter because a consumer can meet similar needs by using margarine. So, when the price of butter rises, the demand for margarine will also likely increase. Note: it is very important to not get substitute goods confused with complimentary goods. While both types of relationships are dependent on two similar types of products, substitute goods replace each other (like butter and margarine) and complimentary goods go with each other (like sheets and a mattress - מזרונים). Also, substitute goods have an inverse relationship between each other's prices and demands and complimentary goods have a direct relationship between each other's prices and demands.



different kinds of flowers can be substitutes for each other. for example, if the price of daisies go up, people can just buy more marigolds because a flower can replace a flower due to their close similarity. however, a tree cannot be a substitute for a flower because it serves a different purpose and produces different results of consumption.

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this video shows that, while an individual may have a tendency to prefer one of butter or margarine over the other, there is really no significant difference between the two. those who claim that one is better aren't really able to come up with a reason for that, and as the man shown 53 seconds into the video points out, the two are ultimately the same. therefore, they are substitute goods. a person can easily use butter in the absence of margarine, or similarly, it the price of butter goes up, people will buy more margarine instead.

http://www.economicswebinstitute.org/glossary/substitute.htm [|http://www.auburn.edu/~johnspm/gloss/substitute_goods] http://www.investopedia.com/search/searchresults.aspx?q=substitute+goods
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Practice Problem: True or False: If the price of a good skyrockets, the demand for its substitute will also rise.

Answer: True