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Chapter 4: Problem 2

Explain what it means if demand increases.

Short Answer

Expert verified
An increase in demand refers to a situation where, at the same price, consumers are willing to buy more of a product or at the same quantity, they're willing to pay a higher price. This leads to a rightward shift of the demand curve on the graph. If supply remains constant, this results in a shortage, leading to an increase in the price and a new equilibrium at a higher price and quantity.

Step by step solution

01

Understanding the Concept of Demand

Demand in economics refers to the quantity of a product that consumers are willing and able to purchase at various prices during a certain time period. It is depicted on the graph as a downward sloping line, which shows that as the price of a product increases, the demand for it decreases and vice versa.
02

Concept of Increase in Demand

An increase in demand refers to a situation where, for the same price, consumers want to buy more units of a product. Or, at the same quantity, they are willing to pay a higher price for the product. This is shown on the demand-supply graph as a rightward shift of the demand curve.
03

Impact on Price and Quantity

When demand increases, and if the supply remains constant, it results in a shortage of the product at the original price, which leads to an increase in the price of the product. The new equilibrium will be established at a higher price and higher quantity. Higher price eliminates the shortage and aligns the quantity supplied and quantity demanded.

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Most popular questions from this chapter

How is the law of demand (a) similar to and (b) different from elasticity of demand?

Yesterday the price of a good was \(\$ 10,\) and the quantity demanded was 100 units. Today the price of the good is \(\$ 12\) and the quantity demanded is 87 units. Did quantity demanded fall because the price increased, or did the price rise because quantity demanded fell?

In recent years the price of a computer has fallen. What effect is this price change likely to have on the demand for software? Explain your answer.

Does an increase in price necessarily bring about a higher total revenue?

Good A has 10 substitutes, and good B has 20 substitutes. The demand is more likely to be elastic for which good? Explain your answer.
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