Increase in demand

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.

Posted Date: 11/27/2012 6:16:25 AM | Location : United States

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