If X and Y are substitute goods, then a fall in the price of goods Y will lead to a fall in the demand for goods X. This is because with a fall in the price of goods Y, it will become cheaper in comparison to goods X, and thus, the demand for goods Y will increase and that of goods X will fall. Graphically, the effect of this change can be seen as follows :
Now, if market demands of goods X decreases, then the market demand curve shifts parallel leftwards to D2D2. Now, at the initial price OP, there exists supply equivalent. to Oq1 - Oq'1, units of output. Due to the excess supply, the competition among the producers increase and they try to get rid of the excess stock by selling their output at a comparatively lower price. The price will continue to fall until it reaches OP2, and the new equilibrium is established at point E2, where the new demand curve D2D2 intersects the initial market supply curve S1S1 Hence, a decrease in market demand with supply remaining constant will result in fall in the equilibrium price of goods X as well as the equilibrium quantity.
