Let us again consider the market for condensed soups. Suppose that incomes have risen. Since condensed soup is a normal good the demand for condensed soup will increase. Using the same procedures as before; the initial equilibrium is at the intersection of the supply and demand curves, S and D. The price- quantity pair that corresponds to this initial equilibrium is designated Q* and P*. An increase in demand moves the demand curve to the right from D to D'. The new equilibrium price- quantity pair is P' and Q'. Notice that an increase in demand caused price to move from P* to P' and quantity to move from Q* to Q'. Both price and quantity increased.
Graph 4.2 An Increase in Demand