What does the substitution effect describe?

The substitution effect describes how a change in the price of a good affects the quantity demanded of that good compared to its substitutes. When the price of one item decreases, it becomes relatively more attractive to consumers compared to similar products, prompting them to buy more of it. This leads to an increase in the quantity demanded of that item while causing a decrease in the quantity demanded of its more expensive substitutes.

This concept is fundamental in understanding consumer behavior in economics, as it highlights how consumers will switch their preferences between goods based on price changes. For example, if the price of coffee decreases, consumers may choose to buy more coffee instead of tea, illustrating the substitution effect in action.

The other options focus on different economic concepts. Changes in consumer preferences or income levels pertain to shifts in demand rather than the substitution effect itself. Additionally, changes in quantity supplied due to technological advances deal with supply dynamics, which is unrelated to the substitution effect.