Market for a good is in equilibrium. The demand for the good 'increases'. Explain the chain of effects of this change.
Equilibrium is defined as a situation where the plans of all consumers and firms in the market match and the market clears. When the supply and demand curves intersect, the market is in equilibrium. This is where the quantity demanded and quantity supplied are equal. The corresponding price is the equilibrium price or market-clearing price, the quantity is the equilibrium quantity. Suppose D1 and S1 are the initial market demand curve and the initial market supply curve, respectively. The initial equilibrium is established at point E1, where the market demand curve and the market supply curve intersects each other. Accordingly, the equilibrium price is OP1 and the equilibrium quantity demanded is Oq1. |