Substitution Effect

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Dictionary Says

Definition of 'Substitution Effect'

The idea that as prices rise (or incomes decrease) consumers will replace more expensive items with less costly alternatives. Conversely, as the wealth of individuals increases, the opposite tends to be true, as lower-priced or inferior commodities are eschewed for more expensive, higher-quality goods and services - this is known as the income effect.

Investopedia Says

Investopedia explains 'Substitution Effect'

Although beneficial to some (i.e. discount retailers), in general, the substitution effect is very negative in nature, as it limits choice. This is true not only for products, but also for services. Examples of the substitution effect in action can sometimes be observed over the winter holiday season, where, in lean economic times, discount retailers often hold up well.
Search results for

'Substitution Effect'

  • Can Alcoa's Recovery Continue?

    http://stocks.investopedia.com/stock-analysis/2011/Can-Alcoas-Recovery-Continue-AA-FCX-AWC-ACH-RIO-KALU-DOW0413.aspx
    ... about right now. The substitution effect takes time and there are tradeoffs
    in performance, reliability and so on. So it's true ...

  • The Caustic Soda Cycle

    http://stocks.investopedia.com/stock-analysis/2009/The-Caustic-Soda-Cycle-DOW-OLN-IP-MWV0403.aspx
    ... The last reason is the substitution effect, as manufacturers can switch
    inputs in their products from caustic soda to soda ash. ...

  • Atwood Energy: Company Review

    http://stocks.investopedia.com/stock-analysis/2011/Atwood-Energy---Company-Review-ATW-CVX-NBL-BHP0621.aspx
    ... 2011. Strategy Atwood Energy is depending on the substitution effect to
    absorb some of its new build rigs when they come to market. ...

  • Using Coincident And Lagging Indicators

    http://www.investopedia.com/articles/economics/08/coincident-lagging-indicators.asp
    ... The chain-weighted index models the substitution effect – the theory that buyers
    will purchase more of a less-costly item as the price of a similar item ...

  • Carbo Ceramics Rides The Onshore Oil And Gas Boom

    http://stocks.investopedia.com/stock-analysis/2011/Carbo-Ceramics-Rides-The-Onshore-Oil-And-Gas-Boom-CRR0805.aspx
    ... Substitution Effect Some operators are substituting lower priced sand proppant in
    place of ceramic proppant if a well can be completed efficiently without the ...

  • CFA Level 1 Study Guide - Global Economic Analysis - Effect of ...

    http://www.investopedia.com/exam-guide/cfa-level-1/global-economic-analysis/monetary-policy-exchange-balance-payments.asp
    ... 3.7 Market Efficiency; 3.8 Price Ceilings and Floors; 3.9 Effect of Taxes on Supply
    and Demand; ... 5.16 Effect of Monetary Policy; 5.17 Fixed vs. ...

  • Why The Consumer Price Index Is Controversial

    http://www.investopedia.com/articles/07/consumerpriceindex.asp
    ... example on the effect of consumer behavior and different calculation methodologies
    on the CPI, assume the following scenario where substitution occurs at the ...

  • The Basics Of Tariffs And Trade Barriers

    http://www.investopedia.com/articles/economics/08/tariff-trade-barrier-basics.asp
    ... to protect infant industries can be seen by the Import Substitution Industrialization
    (ISI ... The effect of tariffs and trade barriers on businesses, consumers and ...

  • CFA Level 1 Study Guide - Macroeconomics - The Consumer Price ...

    http://www.investopedia.com/exam-guide/cfa-level-1/macroeconomics/consumer-price-index.asp
    ... 3.7 Market Efficiency; 3.8 Price Ceilings and Floors; 3.9 Effect of Taxes on Supply
    and Demand; ... 5.16 Effect of Monetary Policy; 5.17 Fixed vs. ...

  • CFA Level 1 Study Guide - Microeconomics - Marginal Benefit and ...

    http://www.investopedia.com/exam-guide/cfa-level-1/microeconomics/marginal-benefit-cost.asp
    ... 3.7 Market Efficiency; 3.8 Price Ceilings and Floors; 3.9 Effect of Taxes on Supply
    and Demand; ... 5.16 Effect of Monetary Policy; 5.17 Fixed vs. ...

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