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8 May, 2015 - 10:37

Substitute goods are goods which can be replaced by each other in the mind of consumers. For instance, tea and coffee are for many (but not all) consumers interchangeable goods. If the price of tea goes up, the purchases of tea will decrease and the purchases of coffee will increase. Thus, the relationship between the price of tea and the quantity of coffee is direct.

Butter and margarine, tea and coffee, taxi and bus, pen and pencil, hotel and motel, radio and record player, are all items which, for most people, can be replaced by each other. They are substitute goods.