# Comparison Between An Increase In Demand And A Decrease In Demand

After you have worked through this section of the learning unit, you should be able to:

• compare the impact on the market of an increase in demand with a decrease in demand

The table below provides a comparison between the impact of an increase in demand and a decrease in demand on the equilibrium quantity and equilibrium price.

The impact of an increase in the demand for a good or service can be summarised as follows:

An increase in the demand causes the demand curve to shift to the right. At the initial equilibrium price, excess demand (or shortage) develops in the market. In other words, the quantity demanded exceeds the quantity supplied. The excess demand causes the price of the product to increase, and the excess demand starts to decrease as the quantity demanded decreases and the quantity supplied increases. This process continues until a new equilibrium is reached, where the price, the quantity demanded and the quantity supplied are higher compared to the equilibrium position before the increase in demand.  The impact of a decrease in the demand for a good or service can be summarised as follows:

A decrease in the demand causes the demand curve to shift to the left. At the initial equilibrium price, excess supply (or surplus) develops in the market. In other words, the quantity supplied exceeds the quantity demanded. The excess supply causes the price of the product to decrease, and the excess supply starts to decrease as the quantity demanded increases and the quantity supplied decreases. This process continues until a new equilibrium is reached, where the price, the quantity demanded and the quantity supplied are lower compared to the equilibrium position before the decrease in demand.  #### Activity

Do the following activity to see if you understand the comparison illustrated in the table:

### If both the equilibrium price and equilibrium quantity increase in a market, we can conclude that a possible cause is that the demand has _____

Correct.

The demand has increased. An increase in demand leads to an increase in price and an increase in the quantity demanded.

Think again.

A decrease in demand decreases the equilibrium price and the equilibrium quantity.