Question

What does the substitution effect in the law of demand mean?​

Answer 1

Answer:

The substitution effect is the component of a change in demand for a good as a result of a price change that can be attributed to substitution between different goods. As prices rise, consumers will replace more expensive items with less costly alternatives. Conversely, as the relative price of a good falls, consumers will purchase more of it relative to substitute goods. The substitution effect works in conjunction with the income effect to determine the total change in demand for a good after a price change.

Understanding the Substitution Effect

Consumers have the tendency to replace or substitute normal economic goods with cheaper alternatives when prices increase. The same consumers tend to substitute low-cost alternatives with higher-priced goods when the good's price decreases.

For example, when the price of pork increases compared to the price of chicken, consumers are more likely to substitute pork consumption with chicken consumption. The quantity of pork demanded declines, and the demand for chicken increases. In this case, the chicken is a substitute good

Answer 2

Explanation:

Explanation:The substitution effect is the component of a change in demand for a good as a result of a price change that can be attributed to substitution between different goods. As prices rise, consumers will replace more expensive items with less costly alternatives. Conversely, as the relative price of a good falls, consumers will purchase more of it relative to substitute goods. The substitution effect works in conjunction with the income effect to determine the total change in demand for a good after a price change.