The substitution effect of a price change describes the change in the quantity demanded of a good due to a change in its relative price.

Question

Quizplus · Accepted Answer

The statement is correct. The substitution effect occurs when a change in the price of a good or service causes consumers to shift their purchases towards either substitute goods or complementary goods. This is because consumers will substitute the good that has become relatively more expensive with a similar, but cheaper, alternative.

The Substitution Effect of a Price Change Describes the Change