Market of a commodity is in equilibrium, demand for the commodity ‘decreases’. Explain the chain of effects of this change till the market again reaches equilibrium. Use diagram.
Effect of decrease in demand of a commodity on equilibrium price and quantity is discussed below with reference to the given figure.
Decrease in demand implies a shift in demand curve to the left. This sets in the following chain of effects.
Decrease in demand implies that less is supplied at the existing price. Given the supply, price of the commodity will tend to decrease . Fall in price will cause extension of demand and contraction of supply. Hence, equilibrium quantity decreases.