Question

In: Economics

Theory of consumer behaviour

What do you mean by substitutes? Give examples of two goods which are substitutes of each other.

Solutions

Expert Solution

Substitutes are the goods of the same category which can be used interchangeably to some extent. For example, let us consider the products tea and coffee. Both of these products fall under the same classification of hot beverages, fulfil similar needs and are also similarly priced. Hence, a consumer will shift to coffee if the price of tea increases and vice versa.
Another example is Tea and coffee are goods that can be substitutes for each other. If the price of tea increases, then the demand for tea will decrease and people will substitute coffee for tea, which will increase the demand for coffee.


Substitutes are the goods of the same category which can be used interchangeably to some extent.

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