Apr 23 2012

Substitution effect

Published by at 2:43 pm under

One of the explanations for the law of demand and the downward sloping demand curve. Says that as the price of a good decreases, it makes substitutes appear more expensive, thus consumers demand more of the now cheaper good. On the other hand, as the price of a good increases, its substitutes appear cheaper and consumers will switch to alternative products.

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