What are substitute goods?

Substitute goods are defined as products that can replace one another in consumption, meaning that if the price of one good rises, consumers are likely to purchase more of the alternative good instead. This relationship highlights the elasticity of demand concerning substitutes; when one product becomes more expensive, it incentivizes consumers to seek out the other option that fulfills a similar need or purpose.

For example, if the price of coffee increases, consumers might choose to buy tea instead, demonstrating how changes in price directly influence demand for these goods. This substitution effect is crucial in understanding market dynamics and consumer behavior, particularly in competitive markets where products serve similar functions. Understanding this concept allows economists to analyze how price changes can affect overall market demand and consumer choices effectively.

The other options do not accurately capture the essence of substitute goods. Goods that can only be consumed together refer to complementary goods, while those that cannot serve the same purpose would indicate unrelated products, and essential goods pertain to basic needs rather than substitution relationships in consumer behavior.