Question

The growth and quality of televised sport is a key issue for the majority of professional sport leagues and to a lesser extent college (i.e., football/basketball). Researchers refer to a ‘substitution effect’ and numerous factors that increase the ‘substitution effect’. Please explain what researchers refer to as the ‘substitution effect’ and discuss what factors may influence this effect and how the factors may influence this effect.

Answer 1

​​​​​​Substitution Effect

​​​​​​When the price of a commodity falls,it becomes relatively cheaper than the other commodities.Assuming that the prices of all other commodities remain constant,it induces consumers to substitute the commodity whose price has fallen for other commodities which has now become relatively expensive.The result is that the total demand for the commodity whose price has fallen increases.This is called substitution effect.

In the given scenario,people find telesports more cheaper than watching games of professional sport leagues .Thus there is an increased demand for telesports and substitution effect occurs.

There are many factors which affects the substitution effect.They are,

●Availability of substitutes:- The higher the availability of substitutes , the more choices the consumer can make.

●Position of commodity in the consumers budget:- If the particular commodity is of greater proportion in the consumer's budget, the greater will be the chance for substitution effect and if the proportion is less, the less will be the chance for substitution.

●Nature of the need that a commodity satisfies:-If the goods are of luxury nature, there will be less chance for substitution.And on the other hand ,in case of goods like television,there will be more chances for substitution.

●Number of uses to which a commodity can be put:- The more the possible uses of a commodity,the greater will be chances for substitution.

●Consumer habits:- If a consumer is a habitual consumer of a commodity,no matter how much it's price, he will continue to use the same.

●Price range:- Good which are in a very high price range or in a very low price range will have less range of substitution effect where as for those in the middle, the greater will be the chance for substitution.