Changes in demand and supply: Changes in demand
Channel: econom
Date: 24/11/2015

A change in demand takes place when any of the non-price factors such as tastes and preferences, income of households, number of households, price of related goods, etc change.
An increase in demand such as an increase in income of households causes an excess demand at the equilibrium price. This excess demand exerts upward pressure on the price and this process continues until a market equilibrium is reached with a higher equilibrium price and a higher equilibrium quantity.
A decrease in demand caused, for instance by a decrease in the price of a substitute good, causes an excess supply at the equilibrium price. This excess supply exerts downward pressure on the price and this process continues until a market equilibrium is reached with a lower equilibrium price and quantity.