Demand destruction

Because of persistent high prices, consumers may decide that it is not worth purchasing as much of that good, or seek out alternatives as substitutes.

A familiar illustration of demand destruction is the effect of high gasoline prices on automobile sales.

[2] If the price rise were caused by a temporary lack of supply, and the price then subsequently goes back down as supply returns to normal, the quantity of gas consumed in this case does not immediately go back to its previous level, since the smaller cars that had been sold remain in the fleet for some time.

[3] The expectation of future prices and their long-term maintenance at non-economic levels for a certain quantity of consumption also affects vehicle decisions.

[4] Competition from low priced natural gas, reduced demand for coal due to emission restrictions and uneconomic export situations each play a part.