Demand Shifts Up Increasing Equilibrium Price and Quantity

We'll start with a simple market adjustment scenario arising from an increase in demand. Demand can change for many reason, any one of which would lead to a shift in the demand curve. For our purposes here, let's suppose the market for white shirts is in equilibrium, with an equilibrium price of and equilibrium quantity of .

Next, suppose The Gap starts a successful advertising campaign using commercials with Dennis Hopper, and further suppose the result is that white shirts become very hip. Another way of saying this is that the demand curve for white shirts shifts up and to the right (demand increases) from D1 to D2, as shown to the right. As a result of the increased demand, the equilibrium price for white shirts increases from to and the equilibrium quantity increases from to . In other words, the price of shirts increases and more are sold, as a result of the increase in demand.

Whenever the demand curve, for any good or service, shifts out, both equilibrium price and quantity increase.

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