Apr 23 2012

Substitution effect

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.


About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author


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