The substitution effect involves what consumer behavior?

The substitution effect refers to the phenomenon where consumers adjust their purchasing choices in response to a change in the price of a good or service. When the price of a certain product increases, consumers may look for alternatives that provide similar satisfaction or utility at a lower cost. This behavioral shift is the essence of the substitution effect.

When considering the choices, selecting alternatives to the focal brand demonstrates the core principle of this effect. It highlights consumer behavior where individuals substitute one product for another when the perceived value shifts due to price changes. For instance, if the price of brand X rises, consumers might opt for brand Y, which offers similar benefits at a more affordable price. This aspect of consumer behavior showcases how price sensitivity can influence the choices made in the marketplace.

The other options do not accurately represent the substitution effect. Choosing higher-priced brands regardless of price changes does not align with the substitution principle since this behavior would typically indicate a preference rather than a reaction to price shifts. Increasing demand for luxury items and decreasing demand for necessities also do not capture the essence of substitution but rather reflect changes in consumer preferences or purchasing power without specifically addressing the concept of substituting one product for another due to price changes.