Explain how a change in demand affects the equilibrium price and quantity of the good or service.
Changes in demand can affect the equilibrium price and quantity of a good or service. When demand for a good or service changes, the equilibrium price and quantity will change. For example:
If you’re not familiar with this concept, the equilibrium price is the price at which a good or service is sold. The equilibrium quantity of a good or service is how many times it has been purchased in an average period of time.
When demand for your product increases (the amount that consumers are willing to buy), its price will increase too–or more specifically, if you increase your price (for example, by raising it), then fewer people will buy from you than before because they don’t want to pay more than they did before.
If demand decreases (in other words: fewer people want your product), then its equilibrium price will decrease accordingly; however if demand stays constant or fluctuates around another value then there’s no change in either quantity or price since those two things aren’t connected together at all!
When a negative change in demand occurs, the equilibrium price will decrease as supply increases. The opposite happens when there is an increase in demand:
When more people are buying something, it means less is being supplied. The same thing happens if fewer people are buying something–there are more goods available for sale at prices that reflect their cost of production (or “fixed costs”).
When a positive change in demand occurs, the equilibrium price will increase as supply increases. This can be seen by examining Figure 1, which shows that when there is an increase in demand, what was previously a vertical shift along the supply curve becomes vertical on both sides of it due to increased supply.
The price elasticity of demand for this good or service (the percentage change in quantity demanded for each one percent change in price) is -1.0% because people are willing to pay no matter what price they have to pay.
When demand changes, the equilibrium price and quantity of a good or service also change. When demand increases, the equilibrium price increases and the equilibrium quantity decreases. When demand decreases, the equilibrium price decreases and the equilibrium quantity increases.
We’ve covered quite a bit of ground here, but hopefully you now have a better understanding of how changes in demand influence the equilibrium price and quantity of goods and services. It’s important to note that this relationship is not linear—that is, it does not always follow an exact straight line from low to high—but rather follows a curve that starts at one end point and ends at another. This means that when we talk about how changes in demand affect prices or quantities, we are referring only to relative changes between two points on this curve: either up from low points (negative change) or down from high points (positive change).
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