Economic Definition of substitution effect. Defined.
Offline Version: PDF
Term substitution effect Definition: One of two reasons for law of demand and the negative slope of the market demand curve (the other is the income effect). The substitution effect occurs because a change in the price of a good makes it relatively higher or lower than the prices of other goods that might act as substitutes. A higher price means that a good is more expensive relative to other goods, while a lower price means it's less expensive.
« substitute-in-production | sunset law »
Permalink: https://glossary.econguru.com/economic-term/substitution+effect