Microeconomics: Substitution Effect

 

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Relevant Background: "Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses.." (Shapiro et al., 2022)

References: 

Shapiro, D., Macdonald, D., & Greenlaw, S. A. (2022). Principles of Microeconomics 3e (3rd ed.). Open Stax. https://openstax.org/details/books/principles-microeconomics-3e

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Definition: As far as substitution effect (theory relevant to budget constraint line) is concerned consumers tend to consume less of the product with higher prices and more of the product with lower prices. However, this is after considering all other factors equal (Ceteris Paribus). In reality, consumers may end up consuming the same amount or more of the product with higher prices depending on need and elasticity of demand. For example, consumers may buy a house regardless of an increase in price because the house prices are demand inelastic.