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Substitution

Effect

Substitution Effect Relative price of a good changes when price changes Consumers will tend to buy more of the good that has become relatively cheaper. with the level of utility held constant When the price of an item increases. the substitution effect . and less of the good that is relatively more expensive The substitution effect is the change in an item’s consumption associated with a change in the price of the item.

always leads to an decrease in the quantity demanded of the good Substitution Effect – normal goods • If a good is normal When price Quantity demanded When price Quantity demanded .

• Substitution Effect – Inferior Goods If a good is inferior when price Quantity demanded When price Quantity demanded .

• • Substitution Effect – • Inferior Goods The substitution effect is the movement from point A to point C C .