What does contraction of demand refer to?

Contraction of demand refers specifically to the relationship between price and quantity demanded for a specific good or service. When the price of a good rises, consumers tend to buy less of that good; this decrease in the quantity demanded is what is termed a contraction of demand. It illustrates the law of demand, which states that, all else being equal, an increase in the price of a good leads to a decrease in the quantity demanded.

This concept is a critical aspect of demand theory, emphasizing how consumer behavior changes in response to price fluctuations. The focus is purely on the effect of price changes on the quantity demanded of the same product, which helps in understanding market dynamics. In this case, as the price rises, consumers may seek substitutes or forgo the purchase altogether, leading to the observed contraction in demand.