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, and less of
the good that is
relatively more expensive
The substitution effect is the change
in an items
consumption associated with a
change in the price of the
item, with the level of utility held
constant
When the price of an item increases,
the substitution effect

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