An increase in demand of a commodity results in a rightward shift of demand curve which lead to increase in price. It can be explain by diagram as follow- Show
In the diagram, demand and supply of good are equal at point E. So E is equilibrium point. At this point OP is equilibrium price and OQ is equilibrium quantity. When demand increases, demand curve shifts to right i.e. D 1 D 1 , then at OP price there is EF excess demand. This results competition among buyers which will raise the price. At a higher price, quantity demanded will fall and quantity supplied will increase, resulting in upward movement along new demand curve and given supply curve. This reduces the gap between quantity demanded and quantity supplied. These changes will continue till we reach the new equilibrium point E1 where quantity demanded is equal to quantity supplied. Now OP1 is new equilibrium price. Since new equilibrium price [OP1] is higher than the old equilibrium price [OP] which shows that equilibrium price has increased. How does an increase in demand affect equilibrium price and quantity?An increase in demand, all other things unchanged, will cause the equilibrium price to rise; quantity supplied will increase. A decrease in demand will cause the equilibrium price to fall; quantity supplied will decrease.
How is the equilibrium price and equilibrium quantity of a commodity affected by a rise in the prices of its substitutes explain with diagram?1 Answer. A rise in price of substitues leads to an increase in the demand for the commodity. Hence, the demand curve will shift rightwards. With this increase in demand and supply being the same, equilibrium price will rise with an increase in competition among buyers.
How does an increase in the price of a commodity affect the quantity demanded?Demand curve
The demand curve will move downward from the left to the right, which expresses the law of demand: As the price of a given commodity increases, the quantity demanded decreases (all else being equal). When the price of commodities decreases, the quantity demanded will then increase.
How will equilibrium price and quantity of a commodity be affected if demand increases and supply is perfectly inelastic?When demand is perfectly inelastic, then change in supply does not affect the equilibrium quantity. It only changes the equilibrium price. The change may be either an 'Increase in Supply' or 'Decrease in Supply'.
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How does an increase in demand of a commodity affect its equilibrium price and equilibrium quantity explain with the help of a diagram?
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