Term:
Substitution
Definition:
The replacement of products by substitutes, typically in response to changes in relative prices. Rational utility-maximizing consumers, as price takers, typically react to changes in relative prices by reducing, at least marginally, their consumption of goods and services that have become relatively dearer and increasing their consumption of substitutes that have become relatively cheaper. Substitution results in a negative correlation between the quantity and price relatives.
Domain:
Industry
Source:
OECD