Question

What happens to the equilibrium price of a good when demand for that good increases?

Answer 1

• When the demand for a good increases while the supply remains unchanged, it creates a situation of excess demand at the original equilibrium price.
• More buyers are now competing for the same quantity of goods, which puts upward pressure on the price.
• Sellers respond by raising the price, and as the price increases, quantity supplied also rises (because producers are more willing to produce at higher prices), while quantity demanded slightly contracts.
• This process continues until a new equilibrium is reached where quantity demanded equals quantity supplied again.

 As a result, the equilibrium price rises, and in most cases, the equilibrium quantity also increases.