Glossary · Economics

What is Substitute goods?

Goods that a buyer can choose one instead of the other to satisfy the same need. Their main feature is a positive cross elasticity of demand: if the price of one good rises, demand for the other increases. Cross elasticity = percentage change in demand for the second good ÷ percentage change in the price of the first good. The larger the coefficient, the more closely the goods replace each other. The term is the opposite of complementary goods: with complements (for example, a printer and its cartridge), if the price of one good rises, demand for the other falls, and the cross elasticity is negative.

Source: Auburn University economics glossary: substitute goods

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