Final answer:
Two goods are substitutes if a price change in one good results in a change in the quantity demanded of the other. Substitute goods, like Coca-Cola and Pepsi-Cola, have a positive cross-price elasticity of demand, which means consumers switch between them based on price differences.
Step-by-step explanation:
Two goods are substitutes if a change in the price of one good leads to a change in the quantity demanded for the other good. For instance, if the price of Coca-Cola increases, consumers may purchase more Pepsi-Cola instead, as they are close substitutes. This relationship can be described using the concept of cross-price elasticity of demand. Substitute goods have positive cross-price elasticities of demand, meaning that if the price for one increases, the demand for its substitute generally increases as well.
Conversely, a lower price for a substitute good can decrease demand for the other product, which can be visually represented as a shift in the demand curve. For example, if electronic books become cheaper, the demand for printed books may decrease because consumers opt for the more economical substitute.
Substitutes like plane tickets and train tickets showcase this relationship clearly; cheaper plane tickets can result in a decrease in demand for train tickets. Therefore, while complement goods have a joint demand, substitutes are chosen in place of one another depending on changes in price and consumer preference.