Changes In Demand

Suppose that supply is constant and demand increases, as shown in Figure -6(a). As a result, the new intersection of the supply and demand curves is at higher values on both the price and quantity axes. An increase in demand raises both equilibrium price and equilibrium quantity. Conversely, a decrease in demand, such as that shown in Figure -6(b), reduces both equilibrium price and equilibrium quantity. (The value of graphical analysis is now apparent: We need not fumble with columns of figures to determine the outcomes; we need only compare the new and the old points of intersection on the graph.)

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