Final answer:
The substitution and income effects define how consumer choices change with price changes. For normal goods, both effects contribute to increased consumption when prices fall. For inferior goods, increased purchasing power can lead to decreased consumption as consumers choose better substitutes.
Step-by-step explanation:
When the price of a good changes, the substitution effect and the income effect describe how a consumer's purchases are adjusted. For normal goods, a price drop leads to an increase in consumption due to both effects. The substitution effect occurs because the lower price makes the good relatively cheaper compared to other goods, encouraging more consumption of the cheaper good. The income effect reflects the increased purchasing power when the consumer can now buy the same amount of the good as before but with money left over, leading to an increase in the quantity demanded of the normal good. Conversely, for inferior goods, as the price decreases and purchasing power increases, consumers may actually consume less of the inferior good because they can now afford to purchase more of a preferable substitute.