2 Explain why an increase in demand for a good does not lead

2. Explain why an increase in demand for a good does not lead to an increase in supply. What does an increase in the demand for a good lead to?(chp 4)

Solution

- Sometimes an increase in demand does not lead to an increase in supply because :

The demand and supply changes in opposite directions

An increase in demand causes the equilibrium prices to rise, but the effect on equilibrium quantity supplied cannot be determined.

As demand increases, consumers place a higher value on the good and the producers set higher prices with increasing demand

But this does not lead to an increase in supply as the effect on output will depend on the relative size of the two changes.

- An increase in the demand for a good will cause an increase in the equilibrium prices and the quantity.