Substitute

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DEFINITION of 'Substitute'

A product or service that satisfies the need of a consumer that another product or service fulfills. A substitute can be perfect or imperfect depending on whether the substitute completely or partially satisfies the consumer. A consumer might consider Pepsi to be a perfect substitute for Coke, or Land O'Lakes butter to be a perfect substitute for Kerrygold Irish Butter. However, if a consumer sees a difference in these brands, he may see Pepsi and Land O'Lakes as imperfect substitutes, even if economists might consider them perfect substitutes.

INVESTOPEDIA EXPLAINS 'Substitute'

For a product to be a substitute of another good, it must share a particular relationship with that good. When a good's price increases, the demand for its substitute will increase because consumers will go looking for a cheaper alternative. Conversely, when a good's price decreases, the demand for its substitute will decrease. For example, margarine is a substitute for butter because a consumer can meet similar needs by using margarine. So, when the price of butter rises, the demand for margarine will likely increase.

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