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Only if the two products satisfy the three conditions, will they be classified as close substitutes according to economic theory. The opposite of a substitute good is a complementary good, these are goods that are dependent on another. An example of complementary goods are cereal and milk.
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Close Substitute Goods. If two goods are close substitutes, there will be a high cross-elasticity of demand. Example, if the price of Sainsbury’s flour increases 10%, demand for Hovis flour may increase by 20%. To consumers, there is little difference between the two goods.
If two goods are substitutes, an increase in the price of one good will result in a decrease in the quantity bought of that good, and an increase in the quantity of the other. For example, if you view strawberry jam (good 1) and grape jelly (good 2) as substitutes, then an increase in the price of grape jelly will cause you to use more of the ...
Oct 27, 2019 · Some products are close substitutes with a high (positive) cross price elasticity of demand. Others are weaker substitutes especially when consumer/brand loyalty is high. Complement goods. Complementary goods are products which are bought and used together. A fall in the price of Good X will lead to an expansion in quantity demand for X.
Nov 21, 2023 · Substitute goods are products that purchasers may interchange because of limitations of supply or due to price. Some products are more amenable to substitute than others.
- Let's say a person goes to the store to buy lemonade for their child's birthday party, and they discover that the grocery store is out of regular l...
- A substitute good is any product or service that replaces another product or service with little to no noticeable difference to the consumer. If a...
- A substitute good is a product or service that replaces another good with very little to no difference to the consumer. If the price of a substitut...
Mar 20, 2024 · Ante Mazalin. Summary: A substitute, also known as a substitutable good in economics and consumer theory, refers to a product or service that consumers perceive as similar enough to another product to be used interchangeably.
Dec 14, 2023 · Close substitutes are products that bear a close resemblance in terms of features, functionality, price, etc. For example, some smartphones have similar features and can be considered as close substitutes.
