WEBVTT

00:00:00.000 --> 00:00:03.262 align:middle line:90%
[MUSIC PLAYING]

00:00:03.262 --> 00:00:06.070 align:middle line:90%


00:00:06.070 --> 00:00:08.500 align:middle line:84%
A substitute is a
good that satisfies

00:00:08.500 --> 00:00:09.925 align:middle line:90%
the same needs as another.

00:00:09.925 --> 00:00:12.790 align:middle line:84%
A substitute can be
perfect or imperfect,

00:00:12.790 --> 00:00:15.310 align:middle line:84%
depending on the degree
of customer satisfaction.

00:00:15.310 --> 00:00:18.610 align:middle line:84%
For example, if a consumer
substitutes Coke for Pepsi

00:00:18.610 --> 00:00:20.770 align:middle line:84%
and is completely
satisfied, then Coke

00:00:20.770 --> 00:00:22.480 align:middle line:84%
is a perfect
substitute for Pepsi.

00:00:22.480 --> 00:00:25.990 align:middle line:84%
If a consumer is not completely
satisfied with the exchange,

00:00:25.990 --> 00:00:28.270 align:middle line:84%
finding some difference
between the two products,

00:00:28.270 --> 00:00:30.970 align:middle line:84%
then one is an imperfect
substitute for the other.

00:00:30.970 --> 00:00:34.300 align:middle line:84%
Consumers use substitute goods
when the price of one product

00:00:34.300 --> 00:00:37.330 align:middle line:84%
increases and compels them
to find an alternative that's

00:00:37.330 --> 00:00:38.440 align:middle line:90%
less expensive.

00:00:38.440 --> 00:00:42.130 align:middle line:84%
Two close substitute goods have
a positive cross elasticity

00:00:42.130 --> 00:00:42.880 align:middle line:90%
of demand.

00:00:42.880 --> 00:00:45.700 align:middle line:84%
For example, if the
price for Pepsi went up,

00:00:45.700 --> 00:00:47.800 align:middle line:84%
so too would the
demand for Coke.

00:00:47.800 --> 00:00:50.440 align:middle line:84%
If two goods are not
close substitutes,

00:00:50.440 --> 00:00:52.750 align:middle line:84%
a change in one's
price will not impact

00:00:52.750 --> 00:00:53.950 align:middle line:90%
the demand for the other.

00:00:53.950 --> 00:00:56.350 align:middle line:84%
Pepsi's price would
probably not be affected

00:00:56.350 --> 00:00:57.910 align:middle line:90%
by a rise in the cost of milk.

00:00:57.910 --> 00:01:01.260 align:middle line:90%
[MUSIC PLAYING]

00:01:01.260 --> 00:01:02.067 align:middle line:90%