The substitution effect explains why there is an inverse relationship between the price of a product and the quantity of the product demanded.

Question

Quizplus · Accepted Answer

The substitution effect refers to the tendency of consumers to choose a lower-priced alternative when the price of a product increases. This leads to a decrease in the quantity demanded of the original product as consumers switch to substitutes. Therefore, there is an inverse relationship between the price of a product and the quantity of the product demanded, as stated in the question.

The Substitution Effect Explains Why There Is an Inverse Relationship