Provide to demand related in to supply related reasons why the equilibrium price would rise

Expert Solution

Consider the following fig.

So, here “D” be the demand curve and “S” be the supply curve and “E” be the equilibrium, => the equilibrium “P” and “Q” combination is given by, “Pe” and “Qe”. Now, given the supply curve if demand increases implied the equilibrium “P” will increases. So, here if “income of person” increases that will also increase the demand given supply, => “D” will increase, => equilibrium “P” increases. Similarly, if the “price of substitute good increases” or “price of complementary good decrease” that will also increase “D” given by “S”, => the equilibrium “P”. Similarly, because of some occasion people increase their demand for a particular good, => given the supply the equilibrium “P” increases.

Now, given the “D” if supply decreases implied the “S” will shift to the left side, => the equilibrium “P” increases. So, if input price increases that will increase the cost production, => producer reduce their supply, => equilibrium “P” increases. Similarly if government impose tax on a particular good that also reduce the supply as well as increase the equilibrium “P”. So, these are the some factor that can increase the equilibrium “P” of a commodity.

Rahul Sunny answered 2 years ago

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