When he saw that the price of the car model he had planned to buy had increased dramatically, tino decided to purchase another brand instead. which economic principle does this demonstrate? the substitution effect the income effect the demand curve the market demand effect

The correct answer is: "the substitution effect".

The law of demand states that when the price of a product increase, the amount demanded by the consumer side of the market decreases. This variation in the quantity demanded, produced by the variation in price, can be decomposed in two effects.

On the first hand, the substitution effect is related to the change in relative prices. Consumers will prefer the product that is relatively cheaper, so if a certain product becomes more expensive, they will switch to a relatively cheaper substitute, for example, a similar good from another brand.

On the other hand, there is the income effect. If a product becomes more expensive, consumers will be able to purchase a fewer amount given the same level of income available. Therefore, consumption of the expensive product decreases.

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