BusinessDictionary (reference below) defines substitution effect as an effect caused by a rise in price that induces a consumer (whose income has remained the same) to buy more of a relatively lower-priced good and less of a higher-priced one.
BusinessDictionary goes on to say:
“Substitution effect is always negative for the seller: consumers always switch from spending on higher-priced goods to lower-priced ones as they attempt to maintain their living standard in face of rising prices. Substitution effect is not confined only to consumer goods, but manifests in other areas as well such as demand for labor and capital.”
Atlas topic, subject, and course
BusinessDictionary.com, substitution effect, at http://www.businessdictionary.com/definition/substitution-effect.html, accessed 18 May 2016.
Page created by: Ian Clark, last modified 18 May 2016.