In microeconomics, what does the 'Substitution Effect' of a price change measure?

💡 Solution & Explanation

The substitution effect measures the change in consumer consumption resulting solely from a change in the relative price of a good while keeping utility or real purchasing power constant. When a good becomes relatively cheaper, consumers substitute it for other goods that have become relatively more expensive, independent of any change in overall real income. This concept is distinct from the income effect, which captures the change in demand due to the alteration in purchasing power caused by the price shift. Microeconomic consumer behavior principles are standard topics in economics papers.