Question

if General-Mills significantly raises the price of Professor Groth's favorite cereal, Cinnamon Toast Crunch, Professor Groth will probably buy a different cereal, since there are many different breakfast cereals on the market. Which concept does this example illustrate?

Answer 1

The substitution effect

Step-by-step explanation:

Substitution effect occurs when consumers change the products they buy when prices increase. Substitutes are products that can be used interchangeably.

So when the price of a particular good increases consumers tend to look for an alternative (substitute) that will serve the same purpose.

In the given scenario Professor Groth has a favourite cereal, Cinnamon Toast Crunch.

As the price of this cereal increases the Professor is looking at replacing it with other cereals. This is the substitution effect.