Substitute Goods Essay Example

other.

Needless to say, there are relatively few perfect substitutes except between two goods of the same kind. Much more common is for goods to be imperfect substitutes for one another. Compact discs and cassettes, for example, can both be used for the same purpose (as media for recording and replaying sound), but there are significant differences between the two in terms of durability, sound quality, and the cost of the recording media and the equipment used to record on it.

As a result the two can be substituted for one another, but there are significant trade-offs involved in deciding to substitute one for the other: if you buy a tape instead of a CD, you may pay less, but you will get lower sound quality and a less durable good; if you buy a CD instead of a tape, you may get better sound quality but you will pay more and you may not be able to listen to the CD in your car. Nevertheless, CDs and cassettes are substitute goods (though only imperfectly): and so if changes in the market tend to erode the advantages f choosing cassettes over CDs (such as a decrease in CD prices or increased availability of car CD players) it will tend to increase the demand for CDs and decrease the demand for cassettes. The opposite of a substitute good is a complement good. In other words, good substitution is an economic concept where two goods are of comparable value. Car brands are an example. While someone could argue that Ford trucks are much different from Toyota trucks, If the price of Ford trucks goes up enough, some

people will buy Toyota trucks instead.