How does the substitution effect work when the price of an item drops?

I believe the answer is: Consumers buy the item as a substitute for other things

In general, consumers want to keep a certain percentage of their income as savings or investments, which often make them unwilling to continue buying a product when the price increase. So, as an alternative, these consumers would try to find out other products that can fill the purpose of the previous product even though it's not as good. Such product is known as substitute.

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