Final answer:
The substitution effect explains the inverse relationship between price and quantity demanded in economics.
Explanation:
The inverse relationship between price and quantity demanded is called the substitution effect. This effect occurs when a change in the price of a good leads to consumers substituting it for other goods. In economics, the substitution effect is essential in understanding how consumers react to price changes and make decisions.
For example:
- When the price of coffee rises, consumers might choose to buy more tea instead.
- Conversely, if the price of tea decreases, consumers may opt to buy more tea and less coffee.
Learn more about Substitution effect here:
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