The substitution effect helps to explain why demand curves are downward sloping.

Question

Quizplus · Accepted Answer

The substitution effect is one of the reasons why demand curves slope downward. When the price of a good increases, consumers will tend to substitute it for a less expensive good that can serve the same purpose. This substitution effect leads to a decrease in the quantity demanded of the more expensive good, resulting in a downward sloping demand curve.

The Substitution Effect Helps to Explain Why Demand Curves Are