Definition of Substitute Goods: Characteristics, Types, and Examples

Definition of Substitute Goods – In ancient times, before humans knew money, they would barter if they wanted to get the goods they wanted. Bartering is an activity of exchanging goods that are needed by one another.

Simply put, bartering is almost the same as the activity of exchanging goods or substitute objects. However, actually the easiest meaning of this substitute item is a substitute item if the original item is not available. Thus, the substitute item must have a use value and function similar to the original item or the item being replaced.

So, goods for this substitute will not lose their value or use. In other words, the two items have the same use.

For example, when we want to buy goods on the market, of course we have experienced out of stock or being empty. Then, to overcome this, we might buy other items that have the same value and use as the items we wanted to buy before.

Even though it has a different brand, it is not a problem when the function of the item is the same as what we want to buy. Substitute goods that we want to buy are called substitute goods.

Therefore, we can find most substitute goods in various economic activities. Because the basic problems of economics are always related to choice. The reason itself is that humans cannot fulfill all their needs with only limited means of satisfaction.

This is the background of the existence of substitute goods. Did Sinaumeds ever want to buy something, but because it wasn’t available, you ended up switching to a similar product that was available? Well, that’s what is called substitute goods. However, does Sinaumeds know what substitute goods mean? If you want to understand more, let’s see this article until it’s finished.

Definition of Substitute Goods

As the name implies, substitution means as a substitute or exchange. Thus, the notion of substitute goods is goods or services for the necessities of life that can replace the role of similar goods or services. Even though they act as substitutes, these substitute goods or services will not lose their use value.

Where is the role of substitute goods, namely as competitors in the market. This will be very beneficial for the community, because goods supply companies will certainly compete to develop and improve their products.

With various innovations, people have the flexibility to choose products according to their preferences. If a product experiences a price increase, the public as consumers will look for other alternatives that are cheaper in order to save money. Therefore, the demand for more expensive goods begins to decline.

So we can say that the presence of substitute goods can help keep market prices low and of good quality. Consumers can choose the original product or its substitute, which can be much cheaper or of higher quality.

Substitute Goods in Economic Theory

Economists have never said in depth and detail about the meaning of substitute goods. However, in simple terms, a product can be said to be a substitute if it is used with the same function, but with a different form or brand. When explained in economic language, it will more or less read like this:

X becomes a substitute for Y if there is an increase in the demand for X when the price of Y increases, or if there is a positive cross elasticity of demand.

Cross elasticity is one of the three concepts of demand elasticity besides Price Elasticity and Income Elasticity. For its own understanding, namely the percentage change in the quantity of goods demanded caused by changes in the price of other goods. When written using the formula, it will be like this:

Meanwhile, for the general understanding of Demand Elasticity, namely a measure of the degree of sensitivity or response of the demand for an item to changes in various factors that influence it. The higher the level of elasticity, the greater the degree of sensitivity.

Another reason that causes substitutes to appear is because when there is a price increase, consumers will choose products that are much cheaper. Likewise, when there is a shortage of goods, consumers will look for substitutes for the goods they need. This is because consumers assume that the substitute has a resemblance to the item they want.

Characteristics of Substitute Goods

Are all goods that can replace the goods that the market wants can be categorized as substitutes? Unfortunately no. There are several characteristics of substitute goods, including:

a. The desired item is experiencing a shortage

Therefore, when the goods are needed, people will look for other alternatives to meet their needs.

b. Substitute goods have the same function

Therefore, when the original product that we usually use is not available, but there are substitutes that have the same uses and benefits, people will buy these substitutes.

c. Substitute goods will be of the same quality as the goods normally consumed

The quality of substitute goods must not be worse than the quality of the original goods. It would be even better if the replacement item was of better quality. This will affect individual preferences or desires in choosing substitutes for the original goods that are scarce.

d. Substitute items are easy to replace

In that case, substitute goods must be easy to obtain and easy to replace because many similar products have appeared on the market and offer the same functions and benefits. These points will cause people to have the opportunity to try different new products. So that consumer loyalty to one of them may not happen.

e. Substitute goods have the same function

With increasingly competitive substitutes, this will have an impact on the diversity of goods available on the market.

Types of Substitute Goods

After understanding the characteristics of substitute goods, now we will discuss more about the types of goods that are around us. It is quite important to understand that goods that satisfy human needs also have classifications. Goods of human needs can be classified into several categories, including:

1. Based on how to get it
2. Based on the purpose of its use
3. Based on the production process
4. Based on the guarantee
5. Based on the quality
6. Based on its relationship with other goods

While substitute goods fall into the category of types of goods based on their relationship with other goods, namely together with complementary goods. If substitute goods are used to replace other goods, then they are different from complementary goods which function to complement other goods. In addition, complementary goods cannot be used if they are not complemented by other goods or services.

Substitute goods themselves can be divided into two types, namely Perfect Substitutes and Imperfect Substitutes. Let’s see the full explanation below:

1. Perfect Substitute Goods

The definition of perfect substitutes is goods that are identical to one another, both in terms of function, benefits, and also form. So that this type of substitute goods can be used in the same way as the goods being replaced.

One example of a perfect substitute is a smartphone. There are smartphones that have the Android operating system, some are using the iOS operating system. Although they are different, both of them can be used to send messages and make phone calls.

In addition, another example of perfect substitutes is tissue products that come from two different manufacturers. Although the manufacturers are different, the form and purpose of use are the same.

2. Imperfect Substitute Goods

The definition of imperfect substitutes is also known as Close Substitute, because the level of substitution is lower.

Products belonging to this type will provide similar performance characteristics and are targeted at the same market. The similarity of the two goods makes consumers have to consider carefully.

Examples of imperfect substitutes include printed and digital versions of book products. Even though both are books, the physical differences, working principles, and also prices make consumers consider the pros and cons.

For other examples, namely AC or Air Conditioner and fan. Both have the same function, namely as air conditioning. However, there are some striking differences, such as electrical power, the energy needed to cool the room, to the features offered.

Examples of Substitute Goods

In everyday life, there are many examples of substitute goods. Where we often see these items and even use them without realizing it. The following are some goods that are included in substitute goods.

1. Rice with Corn or Cassava

The first example is a staple item in the form of rice which can be replaced with corn. In addition, rice can also be replaced with cassava. Where rice is a staple food for Indonesian people. Because, rice will be used as rice which contains carbohydrates and can make the stomach feel full. Not only that, rice also has a selling value based on its type.

However, Sinaumeds can replace rice by using corn or cassava. If you look at ancient people who only used boiled cassava as a staple food, it was on par with rice. Thus, cassava is an item that has the same use value as rice. Likewise with corn or sago, which can be a staple food for several regions in Indonesia.

2. Pertalite and Pertamax fuel oil or BBM

Since 2014, the government has limited sales of premium fuel and replaced it with Pertalite. This is an example of an imperfect substitute. Although both fuels for vehicles, there are some fundamental differences between the two.

Where Pertamax has an octane number Research Octane Number (RON) of at least 92 with international standards. Meanwhile, Pertalite’s octane number is 90. This higher octane number will make combustion more complete and leave no residue.

In addition, there is a color difference between Pertalite and Pertamax. If Pertamax has a greenish blue color, while Pertalite is bright green. Even though both of them have the same roles and functions, there are different types of vehicles that are suitable for using Pertalite and Pertamax.

Quoted from the Pertamina website, Pertamax is considered more suitable for use by almost all the latest types of vehicles. Meanwhile, Pertalite is more suitable for older vehicles.

2. Print and Digital Books

Some people still choose to buy and read printed books for certain reasons. However, now we can still feel the pleasure of reading books by using digital books. Some companies have even issued devices for reading books. For example, Kindie, Amazon’s electronic reading device brand.

For Kindle owners, the enjoyment of reading books digitally will still be felt. This is because the Kindle itself has a technology called e-ink, which can make the screen different from other electronic devices. So that reading books still feels comfortable and enjoyable.

Reading on the Kindle is claimed to be very light, so it doesn’t make your hands and eyes sore quickly. There are still audiences for printed books, because not everyone can buy a Kindle. Even though paper is very susceptible to mold and termites, printed books still cannot be replaced by technology.

3. Pen and Pencil

A pen is a writing tool that is useful for writing on paper. However, not only pens are items that have the function of writing on paper. There are other items that have the same function, namely pencils. A pencil can replace a pen as a tool for writing on paper. Both have the same functions and benefits. Goods that we can call as substitute goods.

4. Rice and Instant Noodles

Rice can be replaced with instant noodles as a substitute item. The content and nutrients in instant noodles are almost the same as rice. So that instant noodles can replace rice as a food ingredient. Rice takes quite a long time and still requires vegetables or side dishes to be eaten as a staple food.

Meanwhile, instant noodles only take a short time and no additional ingredients are needed, so they can be eaten immediately. At modern food stalls, people generally prefer to look for menus that use instant noodles because the prices are relatively cheap. These rice substitutes are referred to as substitute goods.

5. Chairs and Mats

You can replace the chair with a mat as a tool or a place to sit. Even though mats and chairs have different shapes, they both have the same function, namely as a mat to sit on. So, if there are no chairs, guests can still sit on the mats.

Chairs and mats are also made of the same material, namely plastic. Although chairs are usually made of wood, there are also chairs made of plastic. Because they have the same function, mats can also replace chairs as seats.

6. Laptops and Computers

Laptops and computers have the same functions and uses. The shape of the two electronic devices is also not much different, it’s just that laptops tend to be easier to carry anywhere. The functions of both are also the same, namely for editing, typing, and surfing in cyberspace.

Because both have the same function, these goods can be referred to as substitute goods. If you don’t have a laptop, then you can use a computer.

This is an explanation of the meaning of substitute goods, their characteristics, and examples. As explained above, these substitute goods appear because of human needs. Due to the limited conditions for obtaining these goods, goods appear that can replace the main goods but with the same functions and benefits.