Substitute goods are products that can be easily replaced by other goods. Those goods have the same use, fulfill the same purpose and satisfy the same needs to a degree that the consumer sees in them as an adequate substitute. Substitute goods occur primarily in the area of consumer goods and production goods. The opposite are complementary goods.

In this lesson, we will introduce you to the concept of a substitute good and explain its essential properties to you, distinguish it from the complementary good and list a few examples. Following this, we will provide you with some exercises that you can use to control your knowledge.

English: Substitute | Substitute good

Why are substitutes important?

According to healthknowing.com, substitute goods can often appear in the area of ​​consumer and production goods. Often these are products of the competition, which is why it is particularly important to be able to identify substitutes as such. Substitutes, especially perfect substitutes, can prove to be a critical factor in investment decisions.

Characteristics of a substitute good

In the field of microeconomics, goods that represent a full substitute for another good are referred to as “substitute goods “ or “substitutes”.

Their essential feature is that they bring the same benefits with them as the good they are used to replace. There is thus a functional interchangeability between the two compared goods, which is always considered to be given when the products largely correspond in terms of price, quality and performance. It is crucial that the needs of the customer are met.

Demand for substitute goods

In the case of two interchangeable goods, the demand is correspondingly closely linked. If the price of one product rises, demand falls, while at the same time the substitute good is correspondingly more in demand. The existence of a substitute good produces a higher elasticity of the demand for the observed product and provided that all other factors remain the same.

Examples of substitute goods

• Butter and margarine
• Leather and synthetic leather
• Compact car and electric car
• oil and gas

Perfect and imperfect substitutes

Perfect and imperfect substitutes

Perfect substitute

Perfect substitutes are also referred to as “perfect substitutes” and are suitable for completely replacing a good. This means that there are no differences in quality or price that could lead customers to choose one product over the other.

Imperfect substitute

In contrast, there may be deviations in the case of imperfect substitute goods. The products, also known as “imperfect substitutes”, can differ from the original in terms of cost and quality.

Examples of perfect and imperfect substitutes

For example, a perfect substitute could be a household appliance such as a coffee maker. Two manufacturers produce products that have the same properties and are sold for the same price. Regardless of which of the two coffee machines the consumer chooses, there is neither an advantage nor a disadvantage by choosing one of the two models.

The hardcover and paperback editions of the same title can serve as examples of imperfect substitutes. The paperback edition can replace the more robust hardcover version because it contains the same text, but it is not as robust and does not look as good as it gets. But it is much cheaper to have.