I know many people who love Apple's ecosystem but who won't pay through the nose for a "premium" phone that's way overpowered for their needs.
However, the iPod Touch has been neglected for several years: it's all but an orphan product at this stage.
(One ray of hope: Apple just refreshed the iPad Mini with a two-generations jump in CPU and a few nice-but-overdue tweaks -- double the storage, 1st generation Pencil support, and a TrueTone display. I hope they're planning on doing the same for the iPod Touch.)
Honestly, before I was 'forced' (for work purposes) to use an iphone, I wasn't a fan of Apple - although I admittedly never tried using one. Since then, the three guys that sit near me at work have bought into the apple ecosystem as well.
The real danger for Apple would be compromising with a budget model at the entry level. It would kill their value proposition on the whole rest of their line. The closest they get is previous-year models and refurbs.
I think you’re forgetting about the significant market for used Apple products. There are many people, myself included, who live on used MacBooks, iPhones, iPads, AppleTV, Airport Express, etc., and are perfectly content. I’m typing this out on an iPhone SE that I bought used, and that was the most I’ve ever paid for a phone. My wife is still content with a 5S, and I frankly never notice the difference when I borrow her phone.
Apple (perhaps begrudgingly) cares about us because the used market helps keep the demand high for their new and shiny products.
Along the way consumers will start to tap out and leave Apple's ecosystem altogether.
Maybe that's already set in motion, people are keeping their phones for much longer so it will take a while for the effects to be noticeable.
What's tapping out is the pool of first time iPhone buyers, but fortunately for Apple, iPhones are very 'sticky'. Existing users are very highly likely to replace an iPhone with a new iPhone, and in fact the bulk of sales have been to previous iPhone owners for several years.
When people talk about iPhone sales slowing, they're taking about growth slowing. Actual sales are just levelling off. From here on out we'll see some ups and downs, sure. It looks like we're in for a period of economic risk and uncertainty too which isn't good for anyone, but I don't see any good reason to expect a sustained decline compared to the rest of the market.
It also doesn't take into account people who may be budget conscious now but will have spending power in a few years. Why would apple turn up its nose at that market share?