Consumer choice#Substitution effect

As a substitution effect, the demand change is referred for a commodity in microeconomics, which arises due to a change in relative prices (ie, the price ratio ). Be distinguished from the income effect, which refers to the change in demand due to a change in real income. Both effects are parallel to each other and have opposite effects on the demand for a commodity.

Graphically, the substitution effect can be represented as a movement along the indifference curve.

Example

Someone feeds on bread and rice. Suddenly the price of bread decreases. With each serving of rice, which he waived now, he can make more bread than before. If he concludes that he therefore should now buy less rice and more bread outweighed the substitution effect.

In contrast, the income effect was the argument that his real budget has increased by the unilateral price cut yes and he could therefore also consume more of both goods in the same relation as before.