Wednesday, July 23, 2014

Substitute versus Substitution Effect. Only one word difference but the difference is BIG.

One of the more difficult things to teach to students is the difference between a Substitute (good or service) and the Substitution Effect that the Substitute good or service has on demand for the good that is subject to substitution.  Got that?  

Here is a terrific article on the rise in beef prices and its impact on the market for chicken.  Below I created some slides that hopefully will make the distinction between the two key micro-economic concepts more clear.  Use as you like!  Let me know if you see any errors or how I can refine any aspect.  Thanks.

Beef prices hit wallets, boost poultry's appeal (HT: Big Picture Agriculture)

There's no beef about it, prices for red meat are surging and demand for chicken is benefiting. 
Chicken's versatile appeal and its perception as a good source of protein that's better for you than red meat are also driving sales, RBC Capital Markets' David Palmer said in a phone interview. 
"Chicken is really hot right now, and poultry is viewed as a source of protein that's relatively less inflationary," Palmer said.

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