What effect describes when consumers replace expensive items with cheaper, comparable goods?

The substitution effect describes the phenomenon where consumers opt for less expensive goods when they find that the prices of their preferred items are too high. This occurs because consumers seek to maximize their utility while minimizing costs. When the price of a good rises, it becomes less attractive compared to similar products that have maintained a lower price. As a result, consumers will substitute the more expensive item for a comparable but cheaper alternative, allowing them to maintain their level of satisfaction or utility despite changes in prices.

Understanding this concept is crucial as it helps to explain consumer behavior in response to price changes. The substitution effect is a fundamental principle in economics that illustrates how price competition can affect market demand.