Intertemporal Substitution Effect

The substitution effect is what happens when something you buy gets too expensive, so you buy a cheaper alternative instead. Similarly, if you had to take a pay cut, you choose less expensive alternatives to compensate for a more expensive version you would’ve bought if you had more money.

Who needs a TV when you can just watch videos on your laptop? Who needs ice cream parlour ice cream when you can buy cheaper ice cream from the grocery store? Who needs (legal) pot from a dispensary when you can just buy the seeds and grow your own grass (again, if it’s legal)?

A more unconventional example: dog-people adopting a cat instead of a dog. Many people grow up with dogs, and feel themselves to be true dog-people. But with crushing student debt and apartment city living, many dog-people want a dog...but find owning a dog too expensive. Dogs take more time (time is money) and more space. Cats are easier to care for, and still make great companions (in their own way), making cats a substitute for dogs among many dog-people.