Q2Managerial Economics & Financial Accounting
Question
Explain briefly any three factors which lead to 'Decrease in Demand'.
Answer
A decrease in demand is caused by factors other than the good's own price, such as falling income or changing tastes.
A "Decrease in Demand" refers to a leftward shift of the entire demand curve, caused by changes in determinants other than the commodity's own price.
1. Decrease in Consumer Income: For normal goods, a drop in consumers' purchasing power directly reduces the quantity they are willing to buy at every price level. 2. Decrease in the Price of Substitute Goods: If the price of coffee drops, consumers will switch away from tea, causing the demand curve for tea to shift left. 3. Unfavorable Change in Tastes/Preferences: A negative health report or changing fashion trends can instantly decrease the demand for a product regardless of its price.