What characterizes substitute goods?

Substitute goods are characterized by their ability to serve as alternatives for one another in consumption. When the price of one good rises, consumers may shift their preference to a substitute good that offers a similar utility or satisfaction. This relationship directly affects demand; if the price of one good increases, the demand for its substitute is likely to increase as consumers seek to minimize their costs while still satisfying their needs.

For instance, if the price of coffee rises significantly, consumers might choose to purchase tea instead, as it can fulfill a similar role as a beverage. This ability to replace one good with another is what fundamentally defines substitutes in economic terms. By understanding substitute goods, one can analyze various market dynamics and consumer behavior effectively.