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

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

• A. Price falls; quantity falls
• B. Price rises; quantity rises
• C. Price falls; quantity rises
• D. Price rises; quantity falls

Answer: (A)

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.