Final answer:
The substitution effect causes consumers to consume less of a good when its price increases and more when its price decreases, affecting the demand curve. For example, if the price of coffee increases, consumers may consume less coffee and more tea as a substitute.
Step-by-step explanation:
The substitution effect refers to the change in consumer behavior when the price of one good increases or decreases, causing them to consume more or less of a substitute good.
This effect can impact the demand curve. When the price of a good rises, consumers tend to consume less of that good and more of a substitute good.
Conversely, when the price of a good decreases, consumers may shift their consumption towards that good and away from its substitute.
For example, let's consider two goods: coffee and tea. If the price of coffee increases, consumers may choose to consume less coffee and more tea as a substitute.
As a result, the demand for coffee would decrease, leading to a leftward shift in the demand curve.