Substitution Effect

What is Substitution Effect?

The substitution effect is a concept in economics that refers to the change in consumer behavior that occurs as a result of a change in the price of a good or service. When the price of a good or service increases, the substitution effect occurs when consumers shift their demand to a substitute good or service that is cheaper or perceived as being of similar value.

For example, if the price of gasoline increases, the substitution effect may cause some consumers to switch to a cheaper form of transportation, such as taking the bus or riding a bike, rather than driving their own car. Similarly, if the price of beef increases, the substitution effect may cause some consumers to switch to a cheaper protein source, such as chicken or fish.

The substitution effect can have an impact on the demand for a good or service and can influence the overall level of consumption of that good or service in the market.

See Also

• IT Strategy (Information Technology Strategy)
• IT Governance
• Enterprise Architecture
• Chief Information Officer (CIO)
• IT Sourcing (Information Technology Sourcing)
• IT Operations (Information Technology Operations)
• E-Strategy