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💸principles of economics review

Decrease in Demand

Written by the Fiveable Content Team • Last updated September 2025
Written by the Fiveable Content Team • Last updated September 2025

Definition

A decrease in demand refers to a shift in the demand curve for a good or service, where the quantity demanded at each price point is lower than before. This shift indicates that consumers are willing to purchase less of the product at any given price level, resulting in a lower overall demand for the item.

5 Must Know Facts For Your Next Test

  1. A decrease in demand can be caused by factors such as changes in consumer preferences, a decrease in consumer income, or the introduction of substitute goods.
  2. When demand decreases, the demand curve shifts to the left, indicating that consumers are willing to purchase less of the product at each price point.
  3. A decrease in demand leads to a lower equilibrium price and quantity in the market, as the intersection of the supply and demand curves moves to a new, lower point.
  4. Businesses may respond to a decrease in demand by reducing production, lowering prices, or exploring new marketing strategies to attract more customers.
  5. The impact of a decrease in demand can vary across different industries and markets, depending on factors such as the elasticity of demand and the availability of substitute products.

Review Questions

  • Explain how a decrease in demand affects the equilibrium price and quantity in a market.
    • When demand decreases, the demand curve shifts to the left, indicating that consumers are willing to purchase less of the product at each price point. This shift results in a new equilibrium price and quantity that are lower than the previous equilibrium. The intersection of the supply and demand curves moves to a new, lower point, where the quantity supplied and quantity demanded are equal at the new, lower price. Businesses may respond to this decrease in demand by reducing production, lowering prices, or exploring new marketing strategies to attract more customers.
  • Describe the factors that can lead to a decrease in demand for a product.
    • Several factors can contribute to a decrease in demand for a product, including changes in consumer preferences, a decrease in consumer income, and the introduction of substitute goods. For example, if consumers' preferences shift away from a particular product due to changes in fashion, technology, or social trends, the demand for that product will decrease. Similarly, if consumers have less disposable income due to economic conditions, they may be less willing to purchase certain goods or services, leading to a decrease in demand. The availability of substitute goods that can serve as alternatives to the original product can also cause a decrease in demand, as consumers may choose to purchase the substitute instead.
  • Evaluate the potential business strategies a company might employ in response to a decrease in demand for its product.
    • When faced with a decrease in demand for their product, businesses may employ a variety of strategies to adapt and maintain profitability. One common response is to reduce production, as producing fewer units can help align supply with the lower demand and prevent oversaturation of the market. Companies may also choose to lower prices in an effort to stimulate demand and make their product more attractive to consumers. Additionally, businesses may explore new marketing strategies, such as targeted advertising campaigns or the introduction of complementary products, to attract new customers and increase overall demand. In some cases, companies may even consider diversifying their product offerings or exploring new markets to offset the decrease in demand for their original product. The specific strategies a business employs will depend on factors such as the industry, the availability of substitutes, and the company's long-term goals and resources.