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Demand — Economics STD 11 Commerce — Question

Gujarat BoardEnglish MediumSTD 11 CommerceEconomicsDemand2 Marks
Question
What is substitution effect ?
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Answer

  • When a commodity becomes cheaper, it becomes cheaper in comparison to its substitute because the price of a substitute is constant.
  • Thus, the consumer will decrease his demand of the substitute goods and he is prompted to buy the commodity with the reduced price.
  • As a consequence, demand extends.
  • This effects is known as substitute effects.
  • E.g. if other vegetables are constant in price and only potatoes are cheap, they, will be cheaper in comparison to other vegetables.
  • Thus, the consumer will decrease his demand of other vegetables are buying of more potatoes.
  • Thus, there is increase in demand of potatoes, is the influences of substitute of other vegetables are buying of more potatoes.
  • Thus, there is substitute effect. On the contrary, if the price of a commodity increase, it will be dearer in comparison with other goods.
  • There fore, the consumer will decrease its demand.

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