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Chain of effects-Market Equilibrium

Market for goods is in equilibrium. There is an increase in demand for this good. Describe the chain of effects of this change. Elucidate with the help of diagram.

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Chain of effects in Market Equilibrium:

2173_price.jpg

A) Increase in the demand, shifts demand curve from D1 to D2 to the right leading to surplus demand E1 F at given price OP1.

B) ?As the consumers will not be capable to buy all they wish to buy at this price, there will be competition between buyers leading mount in price.

C) Since price increases, demand begins falling (all along D2) and supply begins rising (all along S) as exhibits by arrows in given diagram.

D) This modification continue till D and S are equavalent at E2.

?E) The quantity mounts to OQ and price to OP2.

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