When demand decreases and supply remains the same, what tends to happen to prices?

When demand decreases and supply remains the same, what tends to happen to prices?

• A. Prices tend to rise
• B. Prices tend to fall
• C. Prices are not affected
• D. The market becomes stagnant

Answer: (B)

When demand decreases while supply remains constant, there is a surplus of goods in the market because consumers are less willing to purchase the same quantity of products at previous pricing. This situation leads sellers to compete for buyers, often resulting in price reductions to attract customers. Thus, the mechanics of supply and demand indicate that prices tend to fall in response to a decrease in demand, aligning with the principles of market equilibrium where supply must adjust to meet demand. In this scenario, businesses may lower prices to clear excess inventory, encouraging sales and restoring balance in the market.

When demand decreases while supply remains constant, there is a surplus of goods in the market because consumers are less willing to purchase the same quantity of products at previous pricing. This situation leads sellers to compete for buyers, often resulting in price reductions to attract customers. Thus, the mechanics of supply and demand indicate that prices tend to fall in response to a decrease in demand, aligning with the principles of market equilibrium where supply must adjust to meet demand. In this scenario, businesses may lower prices to clear excess inventory, encouraging sales and restoring balance in the market.