We have already discussed the price determination of
a commodity whose demand and supply curves are given, but generally demand and
supply keeps on changing, resulting in shift in demand (factors like income, tastes and preferences etc.) and supply( change in technologies, input
prices etc.) curves.
Let us now see the effect of change in
demand and supply, on the equilibrium price and quantity.
Change in demand and Market Equilibrium
Change in demand
has two aspects:
1) Increase in
demand- demand curve shift to the right
2) Decrease in
demand- demand curve shift to the left
Increase in demand:
 |
| demand supply |
In the above
diagram, DD and SS are the initial demand and supply curves. Equilibrium is
struck at E, P and Q is the initial equilibrium price and quantity.
