Decrease in Supply and Demand

A decrease in supply shifts the supply curve to the left and a decrease in demand shifts the demand curve to the left. As a result of these changes there will definitely be a decrease in the equilibrium quantity in the market, but whether price is higher or lower will depend on whether the shift in supply or demand is greater and the elasticities of supply and demand.

Diagram: Decrease in Supply and Demand

The supply and demand curves have shifted because there has been a change in the determinants of supply and demand. For example, there may have simultaneously been a decrease in the level of income and also an increase in the firm's costs.