Thursday, August 26, 2010

Substitutes

The Financial Times reports that Pizza Hut's sales have dropped as consumers are substituting ready-to-eat pizza for heating pizza at home. Remember a substitute is defined as when the price of good A decreases (increases), that the demand for good B decreases (increases). So in this situation, since the price of DiGornio pizza is lower than the price of Pizza Hut pizza and consumer are buying less Pizza Hut pizza, then this fits nicely with the economic idea of these two goods acting like substitutes to consumers.

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