principle of substitution

[moh malekpour]

Moh,

You have to expand the thinking a bit. Try this childhood example and see if it helps explain the priciple of substitution.

A kid goes to the corner store for a snack. He thinks he will buy a bag of chips. When he gets there the chips are sold out and the owner says he won't be getting anymore chips in. What to do?

If you are determined to buy chips, you go elsewhere ( to another SUBSTITUTE market). If you are willing to have a SUBSTITUTE snack, perhaps you purchase a bag of pretzels.

Thus when there is limited supply, your substitute will come from a similar but other market or you sustitute a different type of property if going outside the market does not appeal to you.

Mike,
I thought you are investor and know about the market demand. It is crazy to have a market without paying attention to the demand. Go ahead and produce as many as or as little as substitutions for anything you want but if you have no idea about the demand for it, you are going to waste your time and money. The child who has no physical, mental or emotional demand for chips may settle for no chips at all, however, if that child was addicted to some substance and that was not available, would go to any distance to find that substance because it is the demand that dictates the behavior, not plentiful or shortage.

 

[Steve Owen]

I thought Mike's example was right on target. Of course, one possible substitute would be no chips at all; this would allow that market participant to use his money for something else or to save it. There is the possibility of very elastic demand (or of very inelastic demand). In the case of an addiction, demand might be inelastic to the point that the addict would desire the product at any price. That is one reason the war on drugs will not work the way it is currently constituted. But, it's not an all or nothing situation. Just because demand can have varying degrees of elasticity does not mean that substitution is not helping work toward more equilibrium in the market.

 

[DTB]

Mike,
I thought you are investor and know about the market demand. It is crazy to have a market without paying attention to the demand. Go ahead and produce as many as or as little as substitutions for anything you want but if you have no idea about the demand for it, you are going to waste your time and money. The child who has no physical, mental or emotional demand for chips may settle for no chips at all, however, if that child was addicted to some substance and that was not available, would go to any distance to find that substance because it is the demand that dictates the behavior, not plentiful or shortage.

Thanks for remembering Moh. In fact I did just return from looking at 48 more units and am doing some homework.

Why are you tangling supply/demand with substitution?????

They are both prinicples, however with a high or low supply or demand situation, the principle of substituion is always at work.

In your scenario above you were not using a typically motivated buyer who was ready, willing and able to buy. I was.

 

[moh malekpour]

Thanks for remembering Moh. In fact I did just return from looking at 48 more units and am doing some homework.

Why are you tangling supply/demand with substitution?????

They are both prinicples, however with a high or low supply or demand situation, the principle of substituion is always at work.

In your scenario above you were not using a typically motivated buyer who was ready, willing and able to buy. I was.

Mike,
I am not tangling supply/demand with the principle of substitution, I am defining supply and demand because they are two different things.
The principle of substitution is basically the principle of supply. The substitute is the same as supply, produce or create. But in the market, the demand comps first. Some confuse it with the analogy of which one comes first, the Chicken or the Egg?
To me, the demand comes first. It is insane to engage in supply if you don’t know the demand. All market researchers and investors, look at the demand first and then go for supply or substitute. If you have the demand, you can find a way to supply or substitute it for something else but if you don’t have the demand but have supply, how are you going to create the demand? The demand is purchasing power, motivation, desire, and need, want. If you don’t have those things in the market, your supply goes nowhere.

 

[DTB]

Mike,
I am not tangling supply/demand with the principle of substitution, I am defining supply and demand because they are two different things.
The principle of substitution is basically the principle of supply. The substitute is the same as supply, produce or create. But in the market, the demand comps first. Some confuse it with the analogy of which one comes first, the Chicken or the Egg?
To me, the demand comes first. It is insane to engage in supply if you don’t know the demand. All market researchers and investors, look at the demand first and then go for supply or substitute. If you have the demand, you can find a way to supply or substitute it for something else but if you don’t have the demand but have supply, how are you going to create the demand? The demand is purchasing power, motivation, desire, and need, want. If you don’t have those things in the market, your supply goes nowhere.

Obviously you are not in the "Build it and they will come" camp.

Not ALL market researchers search out demand first, only the timid and shy ones. Some bold pioneers do the reverse.

I give up. :new_sleeping:

 

[Hal Mann]

stubborn!

The principle of substitution is basically the principle of supply.

This is not true.

1) The principle of substitution starts with an assumption of demand by definition.
2) Substitution and Supply & Demand are two entirely separate principles.