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Definition of Substitute Goods
Definition of Substitute Goods
Substitute goods are similar products that a customer may use for
the same purpose. Customers may choose the product they prefer
if it's available and consider substitutes if the price, availability or
quality of their preferred product changes. These changes also
often influence the demand for an item. A substitute good may be
perfect or imperfect. A perfect substitute is a product that's identical
to the original item, while an imperfect substitute is a product that's
similar but noticeably different from the original good.
For Example
Laptop computers and desktop computers are devices for personal computing. While
a desktop computer often stays in one place such as an office or home, a laptop
computer is typically portable. Laptops and desktops are close substitutes that serve
a similar purpose. If the price of desktop computers increases, it may cause an
increase in consumer demand for laptop computers.
Suppose there are two goods Laptop and Battery, which are
complements to one another. The change in their prices and quantity
demanded are depicted hereunder:
In the given schedule, you can observe that as the price of laptops
increases, the demand for laptop batteries decreases.