MICROECONOMICS CH : 13 MARKET EQUILIBRIUM UNDER PERFECT COMPETITION AND EFFECTS OF SHIFTS IN DEMAND AND SUPPLY — Economics STD 11 Commerce — Question

Yes, it is true that the market absorbs the impact of increase or decrease in demand only through the process of 'extension and contraction of demand and supply'.
Reason: When there is increase in demand, demand curve shifts to the right. Excess demand emerges in the market. Price tends to be higher than the equilibrium price. It leads to extension of supply and contraction of demand. It is through this process of extension and contraction that excess demand is eliminated and new equilibrium is established in the market.
Likewise, when there is decrease in demand, demand curve shifts to the left. Excess supply emerges in the market. Price tends to be lower than the equilibrium price. It leads to extension of demand and contraction of supply. It is through this process of extension and contraction that excess supply is eliminated and new equilibrium is established in the market.