Substitute

AAA

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.

RELATED TERMS
  1. Giffen Good

    A good for which demand increases as the price increases, and ...
  2. Parity Product

    A brand of good that has enough similarities with other brands ...
  3. Oversupply

    An excessive amount of a good or other substance. Oversupply ...
  4. Economics

    A social science that studies how individuals, governments, firms ...
  5. Elasticity

    A measure of a variable's sensitivity to a change in another ...
  6. Scarcity

    The basic economic problem that arises because people have unlimited ...
Related Articles
  1. Fundamental Analysis

    The Green Marketing Machine

    Don't let corporations greenwash their dirty laundry. Learn how to spot a phony.
  2. Entrepreneurship

    Cost-Push Inflation Versus Demand-Pull Inflation

    Gain a deeper understanding of aggregate supply and demand, forces which raise the price of goods and services.
  3. Professionals

    Advertising, Crocodiles And Moats

    Memorable advertising is a brick in the fortress that keeps competitors at bay.
  4. In retail, successfully managing return on investment (ROI) and other financial indicators is the key to a healthy business.
    Fundamental Analysis

    The 4 R's Of Investing In Retail

    In retail, successfully managing return on investment (ROI) and other financial indicators is the key to a healthy business.
  5. thinkstock|istock
    Economics

    Understanding Supply-Side Economics

    Does the amount of goods and services produced set the pace for economic growth? Here are the arguments.
  6. Entrepreneurship

    2 Key Tactics Retailers Use To Increase Sales

    Many companies use versioning and bundling to increase sales. These strategies can offer value to consumers, but they also mean higher costs.
  7. Retirement

    Economic Indicators To Know

    The economy has a large impact on the market. Learn how to interpret the most important reports.
  8. Economics

    ShopRite: Supermarket Model for Modern Shoppers?

    ShopRite is a supermarket model that stands out amid the everyday, widespread, corporate-controlled supermarket chains. But does it meet customers' needs?
  9. As the number of new employees increases, the marginal product of an additional employee will at some point be less.
    Investing

    More is Less: Diminishing Marginal Returns

    In formal economic terms, the law of diminishing marginal returns states that as the number of new employees increases, the marginal product of an additional employee will at some point be less ...
  10. Typically, SPEs are subsidiaries of a larger corporation.
    Investing

    How Special Purpose Entities Help Fight Risk

    A special purpose entity, sometimes called a special purpose vehicle, is a legal entity created for one very limited, particular task. Typically, SPEs are subsidiaries of a larger corporation.

You May Also Like

Hot Definitions
  1. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  2. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  3. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  4. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center