Which statement correctly describes substitute products?

Substitute products are defined as goods or services that can be used in place of each other. The key characteristic of substitutes is that when the demand for one product increases, the demand for its substitute typically decreases. This happens because consumers are likely to switch to the alternative product when the price of the original product rises or when they perceive a better value in the substitute. For instance, if the price of coffee rises significantly, some consumers may choose to buy tea instead, leading to an increase in demand for tea while the demand for coffee might decrease.

The relationship between substitutes is negative, meaning that they are inversely related in terms of demand. As one becomes more popular or more costly, the other sees a corresponding shift in preference from consumers. Understanding this concept is crucial in marketing and pricing strategies, as firms often need to consider how the introduction or price changes of one product can affect the market dynamics of its substitutes.