With the help of a diagram explain the effect of “decrease” in de… - Vidyadip

Question

With the help of a diagram explain the effect of “decrease” in demand of a commodity on its equilibrium price and quantity.

✓

Answer

Decrease in demand means less demand at the same price. This leads to shift of demand curve to the left from D₁ to D₂.

Given equilibrium at E1 shift of demand curve leads to excess supply = AE₁ at price OP₁.
This creates a situation where producers are not able to sell all they want to sell at price OP₁. They start offering lower price. As a result price starts falling.
As price falls, supply begins to fall along the supply curve S and demand begins to rise along the demand curve D₂.

This continues till the new equilibrium at E₂.

At new equilibrium, price falls to OP₂ and quantity falls to OQ₁.

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