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Only if the two products satisfy the three conditions, will they be classified as close substitutes according to economic theory. The opposite of a substitute good is a complementary good, these are goods that are dependent on another. An example of complementary goods are cereal and milk. An example of substitute goods are tea and coffee.
Cross elasticity of demand of product B with respect to product A (η BA): = / / = > implies two goods are substitutes.Consumers purchase more B when the price of A increases. Example: the cross elasticity of demand of butter with respect to margarine is 0.81, so 1% increase in the price of margarine will increase the demand for butter by 0.81
I.e., the definition includes both substitute goods and independent goods, and only rules out complementary goods. See Gross substitutes (indivisible items) . References
Fractions: A representation of a non-integer as a ratio of two integers. These include improper fractions as well as mixed numbers . Continued fraction : An expression obtained through an iterative process of representing a number as the sum of its integer part and the reciprocal of another number, then writing this other number as the sum of ...
The nines' complement of a number given in decimal representation is formed by replacing each digit with nine minus that digit. To subtract a decimal number y (the subtrahend) from another number x (the minuend) two methods may be used: In the first method, the nines' complement of x is added to y. Then the nines' complement of the result ...
Complementary goods exhibit a negative cross elasticity of demand: as the price of goods Y rises, the demand for good X falls. In economics , a complementary good is a good whose appeal increases with the popularity of its complement.
When an increase in output by one firm raises the marginal revenues of the other firms, production decisions are strategic complements. When an increase in output by one firm lowers the marginal revenues of the other firms, production decisions are strategic substitutes. A supermodular utility function is often related to complementary goods ...
Mixed-number arithmetic can be performed either by converting each mixed number to an improper fraction, or by treating each as a sum of integer and fractional parts. Equivalent fractions Multiplying the numerator and denominator of a fraction by the same (non-zero) number results in a fraction that is equivalent to the original fraction.