Increase in demand - effect on equilibrium price, Managerial Economics

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Increase in demand

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SS is the supply curve and D1D1 the initial demand curve shifts to the right, to position D2D2.  P1 is the initial equilibrium price and q1 the initial equilibrium quantity.  When demand increases to D2D2, then at price P1, the quantity demanded increases from q1 to qd.  But the quantity supplied at that price is still q1.  This leads to excess demand over supply (qd - q1).  This causes prices to rise to a new equilibrium level P2 and the quantity supplied to rise to a new equilibrium level, q2.


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