A decrease in demand refers to:
a. a rightward shift of the demand curve.
b. an upward movement along the demand curve.
c. a leftward shift of the demand curve.
d. a downward movement along the demand curve.
The correct answer and explanation is :
The correct answer is:
c. a leftward shift of the demand curve.
Explanation:
A decrease in demand means that consumers are willing and able to buy less of a good or service at every price level. This results in a leftward shift of the entire demand curve, rather than a movement along the curve.
Understanding Demand Shifts vs. Movements Along the Curve
The law of demand states that, all else equal, as the price of a good increases, the quantity demanded decreases, and vice versa. However, this relationship only causes movement along the demand curve, not a shift. A shift in demand occurs when factors other than price influence consumer purchasing behavior.
Causes of a Leftward Shift in Demand
Several factors can cause a decrease in demand, leading to a leftward shift of the demand curve:
- Decrease in Consumer Income – If people have less disposable income, they reduce their spending on goods and services.
- Change in Consumer Preferences – If a good becomes less desirable (e.g., due to changing trends), demand will fall.
- Increase in Prices of Substitutes – If the price of a substitute good decreases, consumers may switch to that product instead.
- Decrease in Prices of Complements – If a complement (a good consumed with another good) becomes more expensive, demand for both goods decreases.
- Expectations of Future Prices – If consumers expect prices to drop in the future, they may delay purchases, reducing current demand.
- Demographic or Market Changes – A decline in population or a shift in consumer demographics can reduce demand.
Graphical Representation
A leftward shift in the demand curve means that at every price level, the quantity demanded is lower than before. This is different from a movement along the curve, which occurs due to a change in the good’s price itself.
Thus, a decrease in demand always refers to a leftward shift of the demand curve rather than a movement along it.