<blockquote>
<p>Why do firms reduce both price and supply during a recession?</p>
</blockquote>
<p>From a purely theoretical standpoint, it is not that firms (suppliers) reduce price. Instead, they reduce supply, which is visualized as the supply curve shifting to the left, which in turn might intersect the demand curve at a different equilibrium price.</p>
<p>In a recession the demand contracts. If/when the contraction of demand outweighs a contraction of supply, the result is a lower equilibrium price. A reduction of supply tends to preclude the steeper decrease of price that would occur if only the demand contracted.</p>

CC BY-SA 4.0
2021-06-17T23:11:07.760Z
2021-06-17T23:11:07.760Z
Iñaki Viggers
<p>Could anyone explain why firms reduce both price and supply of goods and services during a recession with a practical real life example for better understanding ?</p>

<macroeconomics><supply-and-demand><price>
Why do firms reduce both price and supply during a recession?
Tim Lee
# Why do firms reduce both price and supply during a recession?

(Asked by: username_0 on 2021-06-17)

Could anyone explain why firms reduce both price and supply of goods and services during a recession with a practical real life example for better understanding ?

**Tags:** macroeconomics, supply-and-demand, price


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## 1 answers

### Answer by username_1 on 2021-06-17. Score: 1

> Why do firms reduce both price and supply during a recession?

From a purely theoretical standpoint, it is not that firms (suppliers) reduce price. Instead, they reduce supply, which is visualized as the supply curve shifting to the left, which in turn might intersect the demand curve at a different equilibrium price.

In a recession the demand contracts. If/when the contraction of demand outweighs a contraction of supply, the result is a lower equilibrium price. A reduction of supply tends to preclude the steeper decrease of price that would occur if only the demand contracted.


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