What happens to the demand for a product if the price of its substitute goes up?

Question

What happens to the demand for a product if the price of its substitute goes up?

Answer 1

The demand for that product will increase, because some people will no longer want the substitute. The amount of that increase will vary according to whether the substitute good was an "inferior good" or an "equivalent good".

Note also, that in none of the above cases, does the price of the original good necessarily rise.

Answer 2

The demand for the original product increases even further as more people will now select this product over its substitute.

Answer 3

If you have two goods which can be substituted for one another and the price of one goes up, the demand for the other will go up, everything else remaining equal.

An example may be: Pizza and Hamburgers. They are both about the same kind of product. Someone may be just as happy eating a slice of pizza as eating a hamburger. But, if the price of the hamburger increases by 20%, you could expect less people to buy hamburgers and more people to move over and buy more pizza, as they are substitutes to each other but one is now more expensive. This would be in a world with only two variables, pizza and hamburgers. That may seem strange but for an economist to observe anything it is easier if your model has as few variables as possible. In this case, two.

Good luck!