If demand decreases while supply remains constant, what happens to the equilibrium price and quantity?

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Prepare for the TExES Business and Finance 276 Test. Study with flashcards and multiple choice questions, each with hints and explanations. Get ready for your exam!

Multiple Choice

If demand decreases while supply remains constant, what happens to the equilibrium price and quantity?

Explanation:
When demand decreases while supply stays the same, the demand curve shifts left. The market clears where this new demand intersects the unchanged supply, which happens at a lower price. Because the price is lower, the quantity supplied (given the fixed supply curve) and the quantity demanded are both lower than before, so the equilibrium quantity falls as well. In short, a drop in demand with constant supply lowers both the equilibrium price and the equilibrium quantity.

When demand decreases while supply stays the same, the demand curve shifts left. The market clears where this new demand intersects the unchanged supply, which happens at a lower price. Because the price is lower, the quantity supplied (given the fixed supply curve) and the quantity demanded are both lower than before, so the equilibrium quantity falls as well. In short, a drop in demand with constant supply lowers both the equilibrium price and the equilibrium quantity.

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