Question

Interpret what an increase in demand and an increase in supply mean. Discuss the causes of an increase in demand and an increase in supply. How are increases in demand and supply expressed graphically?

Answer 1

An increase in demand means buyers will buy more at any price; or are willing and able to pay more to get any given quantity.

Increases in demand can be caused by increases in tastes for the product, an increase in incomes (if the product is normal), an increase in the price of a substitute, a lower priced complement, and expectations of a higher future price. There are many other factors that could cause an increase in demand. An increase in demand is reflected graphically as a rightward shift of the demand curve.

An increase in supply means sellers will put more up for sale at any price; or are willing and able to accept a lower price to make any given quantity available for sale.

Increases in supply are generally caused by anything that reduces costs of production (e.g. increases in technology, lower resource costs)or increases in the number of sellers. An increase in supply is reflected graphically as a rightward shift of the demand curve.

Graphically

Increases in demand and supply is shown by shift in the respective curve.

An increase in demand means demand curve will shift rightward from D1 to D2

An increase in supply means supply curve will shift rightward from S to S1