Substitution Effect
The substitution effect is the change in quantity demanded resulting from a change in relative prices, assuming real income stays constant. When a good becomes relatively cheaper, consumers substitute it for other goods.
Real World
When Aldi cut the price of its own-brand cereal in 2023, many shoppers switched from Kellogg's to Aldi's version, buying more of the relatively cheaper product even though their wages hadn't changed.
Exam Focus
Always distinguish substitution effect from income effect — examiners reward candidates who separate the two using a Slutsky or Hicks diagram.
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