Final answer:
When the price of a substitute good decreases, like good B in this case, consumers tend to buy more of it and less of the substitute good A, demonstrating the substitution and income effects.
Step-by-step explanation:
If goods A and B are substitutes, a decrease in the price of good B will lead consumers to purchase more of good B and less of good A.
This is because substitute goods have positive cross-price elasticities of demand, meaning that if the price of one substitute decreases, the quantity demanded of the other tends to decrease.
Therefore, the correct answer is d. increase the demand for good B and decrease the demand for good A.
To explain further, the substitution effect indicates that consumers will switch to the substitute that has become cheaper relative to the other goods they could buy.
Additionally, the income effect implies that consumers have more purchasing power after the price decline and can afford to buy more of the cheaper good.
When we look at good B becoming cheaper, we see an increase in the quantity demanded for B and a decrease for good A.