Effect of demand shift on equilibrium
Also called: Demand shift · Topic: Markets, Equilibrium and Government Intervention · NCERT: Class 12, Ch 5 "Market Equilibrium"
Meaning
A demand shift means buyers want more or less of a good at every price. With a fixed number of firms, this moves the equilibrium as follows:
- Demand shifts right → price rises and quantity rises (P↑ Q↑).
- Demand shifts left → price falls and quantity falls (P↓ Q↓).
Rule: price and quantity move in the same direction. Changes in income, in the prices of related goods and in the number of consumers shift demand, but not supply.
Example
If coffee becomes costlier, people switch to tea, which is a substitute. Tea demand shifts right, so tea's price and quantity both rise. If shoes become costlier, demand for socks, which are complements, falls. Socks' price and quantity both fall.
Don't confuse with
- Demand shift under free entry and exit: in the long run, new firms enter or old firms leave. So a demand shift changes the quantity and the number of firms, but the price stays at minimum average cost.