ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -What Is a Substitute? A substitute, or substitutable good, in economics and consumer theory refers to a product or service that consumers see as essentially the same or similar-enough to another product. Put simply, a substitute is a good that can be used in place of another.

Detailed explanation-2: -Juice and cold drink are substituted goods, as one could be substituted for the other.

Detailed explanation-3: -An example of substitute goods is Coca-Cola and Pepsi; the interchangeable aspect of these goods is due to the similarity of the purpose they serve, i.e fulfilling customers’ desire for a soft drink. These types of substitutes can be referred to as close substitutes.

Detailed explanation-4: -“Products that can satisfy some of the same customer needs as each other. Butter and margarine are classic examples of substitute goods.” If someone doesn’t have access to a car they can travel by bus or bicycle. Buses or bicycles, therefore, are substitute goods for cars.

Detailed explanation-5: -A direct substitute is whereby two products can be readily exchanged for one another. Think of Pepsi and Cola. By contrast, an indirect substitute is where two goods can still be replaced by one another, but have a weak correlation. For example, bowling and dancing.