Which statement describes the substitution effect?

Question

As demand falls, people will substitute other products.

As the price of a good rises, people will substitute other products.

As the price of a good falls, people will substitute other products.

As demand rises, people will substitute other products.

Answer 1

The correct statement that describes the substitution effect is:

As the price of a good rises, people will substitute other products.

The substitution effect refers to how consumers may replace more expensive goods with cheaper alternatives when the price of a good increases.