In economic terms, what is the impact of decreased demand on market equilibrium?

In economic terms, decreased demand leads to a shift in the demand curve to the left, which affects market equilibrium. When demand decreases, consumers are less willing or able to buy the same quantities of a good or service at existing prices. As a result, this reduced demand puts downward pressure on the equilibrium price, as sellers try to attract buyers by lowering prices.

When the price decreases, the quantity supplied also decreases because suppliers may not find it profitable to produce as much at lower price points. Hence, both the equilibrium price and quantity in the market decline as the demand curve shifts leftward. This results in a new market equilibrium where the price and the quantity traded are both lower than before the decrease in demand occurred.

Understanding this mechanism is crucial in economics, as it illustrates the fundamental relationship between supply and demand in determining market conditions. When demand decreases, it’s expected that both the equilibrium price and quantity will fall, making the choice that indicates both decrease the correct response.