how then does any company get away with increasing its price in addition to the substitution effect there s the income effect some of its customers may be enjoying an increase in spending power and be willing to buy a pricier product a company s success in repricing its product is determined in part by how much of the substitution effect is offset by the income effect 
special considerationsas noted when a product price increases consumers tend to drop it for a cheaper alternative this can turn into an endless game of supply and demand steak prices rise so consumers substitute pork this leads to a decline in the demand for steak so its price drops and consumers return to buying steak this does not mean only that consumers chase a bargain consumers make their choices based on their overall spending power and make constant adjustments based on price changes they strive to maintain their living standards despite price fluctuations the substitution effect kicks in when a product s price increases but the consumer s spending power stays the same the substitution effect is strongest for products that are close substitutes for instance a shopper might pick a synthetic shirt when the pure cotton brand seems too pricey eventually enough shoppers may follow suit to make a measurable effect on the sales of both shirt makers elsewhere if a golf club hikes its fees some members might quit however if there is no comparable choice for them to turn to then they may just have to pay up to avoid quitting the sport completely as illogical as it seems the substitution effect may not occur when the products that increase in price are inferior in quality in fact an inferior product that rises in price may actually enjoy a sales increase products that display this phenomenon are called giffen goods after a victorian economist who first observed it sir robert giffen noted that cheap staples such as potatoes will be purchased in greater quantities if their prices rise he concluded that people on extremely limited budgets are forced to buy even more potatoes because their increasing price places other higher quality staples altogether out of their reach substitute goods may be adequate replacements or inferior goods demand for an inferior good will increase when overall consumer spending power falls 