Substitution effect

Substitution effect means when you change from using one thing to using another thing. It is like when you have two types of toys to play with, and you decide to play with the one which you like better instead of the other one. You can substitute the toy you don't want to play with the toy that you like more.

Just like that, when the price of something goes up, people might decide to substitute it with something else that is less expensive. For example, if the price of candy goes up, you might decide to start buying apples instead. This is because candy has become more expensive, and apples are a cheaper and healthier alternative.

Substitution effect is an essential concept in economics because it helps to explain how people react when the price of something changes. It is all about making choices about what we can afford, and what we think is valuable to us. When we substitute one good for another, we are making a choice based on what we can afford and what we find more valuable.

So, in simple words, the substitution effect means when you switch to something else because that is cheaper or better than what you used before.