Effect of increase in demand

The 1^st effect of changes in demand (shift of demand to right) may be stated as follows.

In the short run, other things being equal, an increase in demand cause shortage and it will raise the price which in turn extent the supply and contract the demand until it reach a new equilibrium

Diagram to show the effect of increase in demand

The initial equilibrium is at E_P price and E_Q quantity demanded and supplied.

Due to a change in the …….other than price factor…… demand now increases

The increase in demand is shown by a shift of demand curve to D₁D₁ from DD.

This will results a shortage (at this time, demand is greater than supply)  at the ruling price E_P. 

This shortage will push the price upwards.

Now the increased price cause an extension of supply and contraction of demand (as shown by a movement along the curve) until it reach a new equilibrium at price N_EP (greater than E_P) and quantity demanded and supplied N_EQ (greater than the E_Q)

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