A Level Economics AQA Practice Exam

What is the primary characteristic of a substitute good?

1. A good that complements another

2. A good that can be used in place of another

3. A good that has no relation to other goods

4. A good that is more expensive than its complement

The correct answer is: A good that can be used in place of another

A substitute good is defined as a product that can replace another product in consumption. This means that when the price of one good increases, consumers are likely to buy more of its substitute rather than the original good. The essence of substitution is rooted in consumer behavior, where individuals look for alternatives that can satisfy the same need or desire when faced with higher costs or reduced availability of a preferred product. For example, if the price of coffee rises significantly, tea may become a more attractive option for consumers who might switch to it as a substitute. This highlights the fundamental characteristic of substitute goods: their ability to serve as alternatives to each other, allowing consumers to adjust their purchasing decisions based on price changes. In contrast, complementary goods are those that are generally consumed together, and unrelated goods have no impact on each other's consumption. The idea that a substitute must be more expensive than a complement does not align with the basic definition of substitutes, as it isn’t necessary for a substitute good to be more costly compared to the good it replaces. Thus, the defining feature of a substitute good is its capability to be used in place of another, making the correct choice distinctly clear.