The substitution effect occurs when consumers switch from a more expensive product to a similar, less expensive product. For example, if beef and chicken cost the same price, but beef begins rising in price, consumers will switch to the cheaper chicken. Chicken is a comparable alternative compared to beef and a better value.
Once the demand for beef drops, its price will drop as well. Consumers will then switch back to beef. It’s important to note that the substitution effect only works if consumers’ spending power remains the same. If consumers begin earning more, the substitution effect doesn’t impact their choice as much. Consumers are less likely to stop eating beef, even if the price rises.
Download The Guidebook To IPWM
Learn More About How Investment Property Wealth Management works.
Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized”). Securities offered on this website are offered exclusively through Thornhill Securities, Inc., a registered broker/dealer and member of FINRA/SIPC("Thornhill"). Investment advisory services are offered through Thornhill Securities, Inc. a registered investment adviser. Thornhill Securities, Inc. is a subsidiary of Realized. Check the background of this firm on FINRA's BrokerCheck.
Realized does not provide tax or legal advice. Tax topics discussed are for educational purposes only and are not a substitute for professional tax advice. You should discuss your personal situation with a tax or legal professional.
Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.
This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of the services referenced on this site are available in every state and through every representative listed. For additional information, please contact 877-797-1031 or email@example.com.