So now we can see how the price of another good, in this case, a substitute good, can affect the demand for our product. There are other goods related to our product that can affect our demand. The first one we want to talk about here are substitute goods. We define those by saying that when there's an increase in the price of Good X, it's going to cause the demand for Good Y to increase. Alright, this sounds a little complicated, so let's think about it a little bit. This is the idea that one product's price is going up which causes the demand for another product to increase. They are actually substituting their demand for this new product, right? The idea is that since the price went up on this first product, we're going to buy this other thing instead.

So I want to make a note, when two things go up together, when we have variables that are increasing together, so in this case, the price of Good X is going up and the demand for Good Y is going up as well, we call this relationship directly proportional, right? They are going up and up together and vice versa. If they went down together, it also holds true. So if there was a decrease in the price of Good X, there would be a decrease in the demand for Good Y, right? All of these things are vice versa. And one more note is that we are not talking about a change in price here. I know we did say that there was an increase in the price of Good X, right? So you're thinking this could be a change in price, but we are analyzing the demand of Good Y. We're not worried about the demand of Good X in this situation, okay? So the idea here is that we're looking at how the price change of Good X is affecting the demand for Good Y. Our focus is on Y. There has not been a price change to Good Y, right. There was only a price change to Good X.

Sounds a bit technical, but I think once we do a couple of examples here, it'll make more sense. So let's go ahead and look at some of these example substitute goods. Alright, so a great example here is Coke and Pepsi. So if we were to see that the price of Coke were to increase, what's going to happen to Pepsi? We're going to see the demand for Pepsi increase, and that makes sense, right, because people are going to switch their consumption. They are no longer going to be buying Coke. They do not really see a difference between the two; they're just going to buy Pepsi instead. Yes, I know some of you are like, "no, I only buy Coke blah blah blah". We're not talking about you. You would probably stay with Coke, but there are going to be other people that are switching their demand, right. So we are going to see the demand for Pepsi going up there.

Same thing here with margarine and butter. Let's say that the price of margarine goes down in this situation. What's going to happen to the market for butter? Now people are going to buy margarine instead of butter, right, that's the idea. So the demand for butter is going to decrease. Cool. I've got one more example here, apples and oranges. Yes, we are able to compare apples and oranges in a sense here. Let's do a similar example. So let's say the price of apples was to go up, what's going to happen to the demand for oranges? Well, assuming that people will substitute an apple for an orange in their fruit consumption, we are going to say that the demand for oranges is going to go up because people will buy these oranges instead of the higher-priced apples. Cool?

So let's go ahead and try one of these examples on the graph, so you can see that in the next video.