What is Substitution Effect

Substitution effect is a term which is used in economics with reference to behavior of consumer; it refers to effect of change in price of a product on the consumption pattern of consumer. When due to rise in price of a product a consumer switches to another product or find a substitute for a product it is called substitution effect. However the scope of substitution effect is limited because all products do not have perfect substitutes and hence substitution effect does not apply to all products.

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