ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -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.

Detailed explanation-2: -What is the Substitution Effect? 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-3: -1. Income: A rise in a person’s income will lead to an increase in demand (shift demand curve to the right), a fall will lead to a decrease in demand for normal goods. Goods whose demand varies inversely with income are called inferior goods (e.g. Hamburger Helper). 2.

Detailed explanation-4: -The income effect states that when the price of a good decreases, it is as if the buyer of the good’s income went up. The substitution effect states that when the price of a good decreases, consumers will substitute away from goods that are relatively more expensive to the cheaper good.

Detailed explanation-5: -Demand Equation or Function The quantity demanded (qD) is a function of five factors-price, buyer income, the price of related goods, consumer tastes, and any consumer expectations of future supply and price.