Why when I increase my demand for goods and services, they always rise in price? I mean, I know that the demand curve will shift rightward andresult in a higher price of the good, but why? Why when...

Why when I increase my demand for goods and services, they always rise in price? I mean, I know that the demand curve will shift rightward and

result in a higher price of the good, but why? Why when demand rises does the price of the good rise?

Asked on by hghjghgbj

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

The way that economists explain this is by saying that an increase in demand means that more people are bidding for the good.

So you can think of this like an auction on eBay.  When lots of people want some good, they bid it up and the price goes higher.  Economists say that the prices of goods in stores works the same way.

In practice, what happens is that stores start to see that the products are selling really quickly at a given price.  Then they try to raise the price to see what happens -- to see if they can get away with it.  If they can, prices rise and the rise was caused by having more people buy the products.

krishna-agrawala's profile pic

krishna-agrawala | College Teacher | (Level 3) Valedictorian

Posted on

Rise and fall in demand is not same as shift in demand curve. Demand curve is a graph of demand represented on x-axis against market price, assuming all other factors remaining constant. Thus the demand curve represents the quantities of goods demanded at various market price provided all other things remaining constant. The movements along a given demand curve are described as rise or fall in demand.

The demand for a good is affected by many factors other than price of the good. For example, demand of a good may change over a period for reasons like changes in disposable income of consumers, change in life style of people, change in prices of substitute products, changes in usage of supplementary goods. When the pattern of demand changes because of such factors other than price the quantity of goods demanded at every price level changes. In other words, the nature of the demand curve itself changes. When the quantities of a good demanded at various prices increases, the curve shifts to to the left, and when the quantities of the good demanded at various prices increases, the curve shifts to to the right.

When there is shift of the demand curve to the left meaning general rise in demand, while the supply curve remains unchanged, the market equilibrium price, that is, the price at which the demand curve cuts the supply curve, also shift to the right on the demand curve resulting in higher market equilibrium price.

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