Suppose a market is in equilibrium and both the demand and t

Suppose a market is in equilibrium and both the demand and the supply curves increase. What happens the the equilibrium price if demand increases more than supply?

Solution

If the demand increases more than the supply, then the price will go higher than the previous equilibrium price. When demand increases more than supply, this means the existing market demand cannot be met by the existing supply at the given price. Therefore, market price will increase to allocate the limited supply to the buyers who want to pay the increased price.