Substitute Goods
Two goods are considered substitutes when an increase in the price of one leads to an increase in the quantity demanded of the other, and conversely, a reduction in the price of one leads to a reduction in the quantity demanded of the other. This is because substitute goods can be consumed in place of each other, as they fulfill the same function and satisfy the same need or desire.
Examples of Substitute Goods
When the price of one good rises, consumers seek to reduce their consumption of that good and alternatively look for other goods that can be consumed in its place. A good example is tea and coffee, which are consumed in similar situations, such as in the morning or during work breaks. If the price of one increases, some people will start substituting it with the other. Butter and margarine are also a good example; both are used for spreading on bread, cooking, and baking. Therefore, they are interchangeable and can be used for the same purposes.