Price changes are an inevitable part of the business cycle, and they can often have an impact on the availability and prices of substitute goods. As we’ve seen in recent months, disruptions in the global market are causing dramatic increases in the prices of many commodities, and this is having an effect on the selection of substitute goods available to consumers. In this post, we’ll be looking at 20 examples of substitute goods affected by price changes. From food to electronics and beyond, we’ll explore the different types of goods that may be impacted by fluctuations in the market. We’ll also consider how these changes might affect consumers, both in the short and long term, and how businesses can adjust their strategies to remain competitive in a changing market. By the end of this post, you should have a better understanding of how different goods and prices can be affected by shifts in the economic climate, as well as what you can do to protect yourself and your business.
How a price change affects demand for a substitute good
Cappuccinos and lattes
Espresso and steamed milk are two ingredients in the coffee drinks cappuccinos and lattes. Since theyre composed of similar ingredients, theyre close substitutes. Consumer attitudes may change as a result of an increase in cappuccino prices, which could result in consumers ordering more lattes and fewer cappuccinos.
1 White gold, rose gold and yellow gold
Precious metals like white gold, rose gold, and yellow gold all originate from the same main source. Jewelry makers can create rose gold, white gold, or a stronger version of yellow gold by combining pure gold with other metals. These three types of gold can all be used interchangeably. The demand for yellow gold and rose gold substitutes could rise as the price of white gold products rises.
1 Video games and board games
Customers use electronic devices like gaming consoles or computers to play video games. A board game, on the other hand, requires players to use a physical board and game pieces. Although they have various structures, both kinds of games entertain players. But board games and video games frequently have different target audiences, making them poor substitutes for one another. The consumer demand for board games might not be impacted by an increase in video game prices.
Examples of substitute goods
Below is a list of some common substitute goods:
Burgers from McDonald’s and Burger King both meet the needs of the consumer for being served quickly and reasonably priced.
The demand for McDonald’s hamburgers is directly impacted by their price, and vice versa, by the price of Burger King’s hamburgers. They meet the demand for substitute goods’ positive cross-elasticity component.
A “perfect substitute” or “close substitute” is one whose demand increases by the same percentage as that of its competitors in response to a price change. Weak substitutes are those in which a 1% increase in demand for one product results from a 20% increase in the price of another. ’.
The consumer’s preferences determine what constitutes a “perfect substitute” They are ideal replacements if I experience the same level of satisfaction from Coke as I do from Pepsi. Pepsi is a “near-perfect substitute” for Coke if you prefer Pepsi’s flavor over Coke’s, and vice versa.
Factors that affect Substitute Goods
The following illustration shows how demand for Burger King rises when McDonald’s raises its prices. However, when considering the power of substitution, price is not always the only variable. There are many factors at play.
Substitute goods satisfy consumer wants when a variable changes. There are numerous variables at work, including cost, level of quality, and location. If one of these changes, substitute goods come into play.
The neighborhood baker may sell you a nice, fresh doughnut every day. However, one day the quality of these doughnuts declines. It is dry and has no flavour. Consider all the alternatives you could use in its place. There may be other cakes, waffles, or something else. Any item that is bought in place of the doughnut is regarded as a substitute good.
Consumers choose substitutes for a number of reasons. Let us look at some of them below:
The price is likely the most frequent factor driving substitute purchases by consumers. In a restaurant, a pint of beer might cost $10 and a coke $3; the patron must think the beer is worth $7 more. Each individual places a certain value on each product. Therefore, the customer chooses based on their preference for one product over another when making a decision. These are decisions we have taken without thinking.
Often quantity/supply can affect consumers’ decisions to purchase substitute goods. For instance, the last of the iced-ringed doughnuts may have been purchased at the neighborhood supermarket. Customers may look for substitute goods instead.
The demand for alternative products may be impacted by the product’s quality. A known product’s shortcomings can be taken into account during the decision-making process if they don’t taste as good, last as long, or be as comfortable. There might be that run-down eatery around the corner that serves decent food. However, the lower quality is considered alongside the pricing.
There may be two supermarkets. One is on the way home from work, and the other is an additional 15 minutes away. The geographical location gives the customer convenience. This is another aspect the customer will think about when choosing a product.
Consumer tastes can change over time. A trend or holiday item might only be available at certain times of the year. For example, mince pies are only available at Christmas. Although it could be used in place of other bakery items, the product’s seasonality adds value for the consumer.
On a micro level, income growth may have an impact on altering consumer behavior. Customers can purchase a Starbucks coffee to go instead of making their own. Alternatively, as their incomes rise, they might start purchasing more lean cuts of steak. When evaluating substitute goods, the cost of a good becomes less important as incomes rise.
Understanding the Substitution Effect
The substitution effect typically occurs when a good or service’s price rises while the buyer’s income remains constant. This is not only evident in consumer behavior. For instance, a manufacturer may decide to switch to a less expensive model made by a foreign rival when faced with a price increase for a necessary component from a domestic supplier.
So how does any business manage to raise prices? In addition to the income effect, some of its customers may be enjoying an increase in purchasing power and be willing to purchase a more expensive product. How much of the income effect is offset by the substitution effect determines, in part, whether a company is successful in raising the price of its product.
FAQ
What are 10 examples of substitutes?
- Butter and margarine. …
- Physical books and e-books. …
- Sandals and flip-flops. …
- Tuna and salmon. …
- Steel-toe boots and composite-toe boots. …
- Minivans and sport utility vehicles. …
- Earrings and necklaces. …
- Eyeglasses and contact lenses.
What is the effect of price change on substitute goods?
Figure 2 shows that a good’s price change will, ceteris paribus, result in an increase in demand for its substitutes while a good’s price decrease will result in a decrease in demand for its substitutes.
What is the example of substitute goods?
Butter and margarine are classic examples of substitute goods. “Bus or bicycle travel are options for those without access to a vehicle.” Buses or bicycles, therefore, are substitute goods for cars. Two or more products that the consumer can use for the same purpose are substitute goods.
What goods do you think are most affected by substitution effect?
For products that are direct substitutes, the substitution effect is strongest. For example, a consumer may choose a synthetic shirt if the pure cotton brand seems to be too expensive.
