All Topics  
Substitute good

 

 
   Email Print
   Bookmark   Link
 

 

Substitute good
 
 
  Topics Substitute good Topic Home

In economics
Economics

File:Ballard Farmers' Market - vegetables.jpgEconomics is the Social sciences that studies the Production theory basics, Distribution , and Consumption of Good and Service ....
, one kind of good
Good (economics and accounting)

In economics, a good is any object or service that increases utility, directly or indirectly. It should not to be confused with the adjective "good", as used in a moral or ethics sense....
 (or service) is said to be a substitute good for another kind in so far as the two kinds of goods can be consumed or used in place of one another in at least some of their possible uses.

sic examples of substitute goods include margarine
Margarine

Margarine , as a generic term, can indicate any of a wide range of butter substitutes. In many parts of the world, margarine has become the best-selling table spread, although butter and olive oil also command large market shares....
 and butter
Butter

Butter is a dairy product made by churning fresh or fermentation cream or milk. It is generally used as a spread and a condiment, as well as in cooking applications such as baking, sauce making, and frying....
, or petroleum
Petroleum

Petroleum or crude oil is a naturally occurring, flammable liquid found in rock formations in the Earth consisting of a complex mixture of hydrocarbons of various molecular weights, plus other organic compounds....
 and natural gas
Natural gas

Natural gas is a gas consisting primarily of methane. It is found associated with fossil fuels, in coal beds, as methane clathrates, and is created by methanogenic organisms in marshes, bogs, and landfills....
 (used for heating or electricity
Electricity

Electricity is a general term that encompasses a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena such as lightning and static electricity, but in addition, less familiar concepts such as the electromagnetic field and electromagnetic induction....
). The fact that one good is substitutable for another has immediate economic consequences: insofar as one good can be substituted for another, the demand
Demand

Economics*Demand ,the desire to own something and the ability to pay for it*Demand curve,a graphic representation of a demand schedule *Demand deposit, the money in checking accounts...
 for the two kinds of good will be bound together by the fact that customers can trade off one good for the other if it becomes advantageous to do so.

i>increase in price
Price

Price in economics and business is the result of an exchange and from that trade we assign a numerical monetary Value to a product , Service or asset....
 (ceteris paribus
Ceteris paribus

is a Latin phrase, literally translated as "with other things the same." It is commonly rendered in English as "all other things being equal." A prediction, or a statement about causal relation or logical connections between two states of affairs, is qualified by ceteris paribus in order to acknowledge, and to rule out, the possibil...
) will result in an increase in demand for its substitutes goods.






Discussion
Ask a question about 'Substitute good'
Start a new discussion about 'Substitute good'
Answer questions from other users
Full Discussion Forum



Recent Posts

When goods r perfect substiutes . What will be consumer equilibrium. Show it graphically!








Encyclopedia


In economics
Economics

File:Ballard Farmers' Market - vegetables.jpgEconomics is the Social sciences that studies the Production theory basics, Distribution , and Consumption of Good and Service ....
, one kind of good
Good (economics and accounting)

In economics, a good is any object or service that increases utility, directly or indirectly. It should not to be confused with the adjective "good", as used in a moral or ethics sense....
 (or service) is said to be a substitute good for another kind in so far as the two kinds of goods can be consumed or used in place of one another in at least some of their possible uses.

Examples

Classic examples of substitute goods include margarine
Margarine

Margarine , as a generic term, can indicate any of a wide range of butter substitutes. In many parts of the world, margarine has become the best-selling table spread, although butter and olive oil also command large market shares....
 and butter
Butter

Butter is a dairy product made by churning fresh or fermentation cream or milk. It is generally used as a spread and a condiment, as well as in cooking applications such as baking, sauce making, and frying....
, or petroleum
Petroleum

Petroleum or crude oil is a naturally occurring, flammable liquid found in rock formations in the Earth consisting of a complex mixture of hydrocarbons of various molecular weights, plus other organic compounds....
 and natural gas
Natural gas

Natural gas is a gas consisting primarily of methane. It is found associated with fossil fuels, in coal beds, as methane clathrates, and is created by methanogenic organisms in marshes, bogs, and landfills....
 (used for heating or electricity
Electricity

Electricity is a general term that encompasses a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena such as lightning and static electricity, but in addition, less familiar concepts such as the electromagnetic field and electromagnetic induction....
). The fact that one good is substitutable for another has immediate economic consequences: insofar as one good can be substituted for another, the demand
Demand

Economics*Demand ,the desire to own something and the ability to pay for it*Demand curve,a graphic representation of a demand schedule *Demand deposit, the money in checking accounts...
 for the two kinds of good will be bound together by the fact that customers can trade off one good for the other if it becomes advantageous to do so.

Increase in price

An increase in price
Price

Price in economics and business is the result of an exchange and from that trade we assign a numerical monetary Value to a product , Service or asset....
 (ceteris paribus
Ceteris paribus

is a Latin phrase, literally translated as "with other things the same." It is commonly rendered in English as "all other things being equal." A prediction, or a statement about causal relation or logical connections between two states of affairs, is qualified by ceteris paribus in order to acknowledge, and to rule out, the possibil...
) will result in an increase in demand for its substitutes goods. Thus, economists can predict that a spike in the cost of wood will likely mean increased business for bricklayers, or that falling cellular phone rates will mean a fall-off in business for public pay phones.

Different types

It is important to note that when speaking about substitute goods we are speaking about two different kinds of goods; so the "substitutability" of one good for another is always a matter of degree. One good is a perfect substitute for another only if it can be used in exactly the same way. In that case the utility
Utility

In economics, utility is a measure of the relative satisfaction from, or desirability of, consumption of various goods and services. Given this measure, one may speak meaningfully of increasing or decreasing utility, and thereby explain economic behavior in terms of attempts to increase one's utility....
 of a combination is an increasing function of the sum of the two amounts, and theoretically, in the case of a price difference, there would be no demand for the more expensive good.

In microe?onomics, two types of substitutes are being distinguished. Good is said to be gross substitute of good if

Goods X and Y are said to be net substitutes if

where is a utility function.

Perfect and Imperfect substitutes

Perfect substitutes may alternately be characterized as goods having a constant marginal rate of substitution
Marginal rate of substitution

In economics, the marginal rate of substitution is the rate at which a consumer is ready to give up one good in exchange for another good while maintaining the same level of satisfaction....
. Alternate types of soft drinks are commonly used as an example of perfect substitutes. As the price of Coca Cola rises, consumers would be expected to substitute Pepsi
Pepsi

Pepsi is a Carbonation that is produced and manufactured by PepsiCo. It is sold in retail stores, restaurants, cinemas and from vending machines....
 in equal quantities, i.e., total cola consumption would hold constant. Also, blank media such as a writable Compact Disc
Compact Disc

A Compact Disc is an optical disc used to store Data , originally developed for storing digital audio. The CD, available on the market since October 1982, remains the standard physical medium for sale of commercial Sound recording and reproduction to the present day....
s from alternate manufacturers would be perfect substitutes. If one manufacturer raises the price of its CDs, consumers would be expected to switch to a lower cost manufacturer.

Imperfect substitutes exhibit variable marginal rates of substitution along the consumer indifference curve
Indifference curve

In microeconomic theory, an indifference curve is a graph of a function showing different bundles of good , each measured as to quantity, between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another....
.

Perfect Competition

One of the requirements for perfect competition
Perfect competition

In neoclassical economics and microeconomics, perfect competition describes a market in which there are many small firms, all producing homogeneous goods....
 is that the products of competing firms should be perfect substitutes. When this condition is not satisfied, the market is characterized by product differentiation
Product differentiation

In marketing, product differentiation is the process of distinguishing the differences of a product or offering from others, to make it more attractive to a particular target market....
.

Good Substitution

Substitute goods exhibit no complementarities, as in a complementary good.

In other words, good substitution is an economic
Economics

File:Ballard Farmers' Market - vegetables.jpgEconomics is the Social sciences that studies the Production theory basics, Distribution , and Consumption of Good and Service ....
 concept where two goods are of comparable value. Car brands are an example. While someone could argue that Ford trucks are considerably different from Toyota trucks, if the price of Ford trucks goes up enough, some people will buy Toyota trucks instead.

See also