what is the substitution effect 
the substitution effect is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises a product may lose market share for many reasons but the substitution effect is purely a reflection of frugality if a brand raises its price some consumers will select a cheaper alternative if beef prices rise many consumers will eat more chicken 1understanding the substitution effectin general when the price of a product or service increases but the buyer s income stays the same the substitution effect kicks in this is not only evident in consumer behavior for example a manufacturer faced with a price hike for an essential component from a domestic supplier may switch to a cheaper version produced by a foreign competitor 1