Increase in Demand




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

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