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: -The substitution effect is negative for companies that sell products since consumers can go elsewhere for the product. As a result, the substitution effect limits a company’s pricing power or ability to raise prices.

Detailed explanation-3: -The substitution effect is all about how price-sensitive a consumer is. Economists measure the degree of substitution by looking at the cross price elasticity of two products-which is the extent that a price change in one product alters the demand for another.

Detailed explanation-4: -A. An increase in the price of a substitute is correct because the substitute goods have a positive price elasticity of demand. Therefore, when the price of substitute goods rises, it causes the demand to rise which can be depicted by a rightward shift in the demand curve. B.

Detailed explanation-5: -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.