ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The substitution effect refers to the change in demand for a good as a result of a change in the relative price of the good compared to that of other substitute goods. For example, when the price of a good rises, it becomes more expensive relative to other goods in the market.

Detailed explanation-2: -The substitution effect is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises. When the price of a product or service increases but the buyer’s income stays the same, the substitution effect generally kicks in.

Detailed explanation-3: -The law of demand states that consumers buy more of a good when its price decreases and less when its price increases. The law of demand is the result of two separate behavior patterns that overlap, the substitution effect and the income effect.

Detailed explanation-4: -The substitution effect states that as prices rise, or incomes fall, consumers replace more-costly goods with cheaper alternatives. The substitution effect measures the change in spending patterns of consumers when there’s a change in price.

Detailed explanation-5: -The income effect and substitution effect are related economic concepts in consumer choice theory.