Effect of decrease in demand

The 2^nd effect of changes in demand (shift of demand to left) may be stated as follows.

In the short run, other things being equal, an decrease in demand cause surplus and it will fall the price which in turn extent the demand and contract the supply until it reach a new equilibrium

Diagram to show the effect of decrease in demand

 

The initial equilibrium is at E_P price and E_Q quantity demanded and supplied.

Due to a change in the …….other than price factor…… demand now decreases

The decrease in demand is shown by a shift of demand curve to D₂D₂ from D₁D_1.

This will results a surplus (at this time, demand is less than supply) at the ruling price E_P. 

This surplus will push the price downwards.

Now the decreased price cause an extension of demand and contraction of supply (as shown by a movement along the curve) until it reach a new equilibrium at price N_EP (less than E_P)  and quantity demanded and supplied N_EQ (less than E_Q)

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