How Changes in Demand Will Impact Equilibrium Price and Quantity Without Math Formula in Excel Formula

In economics, demand and supply are the forces that determine the price and quantity of a good or service in a market. Demand is the amount of a good or service that consumers are willing and able to buy at each possible price. Supply is the amount of a good or service that producers are willing and able to sell at each possible price. The equilibrium price and quantity are the values that balance demand and supply, where the quantity demanded equals the quantity supplied.

When there is a change in demand, the demand curve shifts to the right or to the left, depending on whether the demand increases or decreases. This causes a change in the equilibrium price and quantity, as the market adjusts to the new level of demand. The direction and magnitude of the change depend on the shape and position of the supply curve.

Procedures

To analyze how changes in demand will impact equilibrium price and quantity without math formula, we can use the following four-step process:

1. Draw a demand and supply model representing the situation before the change in demand. Label the axes, the demand curve, the supply curve, and the initial equilibrium price and quantity.
2. Decide whether the change in demand causes the demand curve to shift to the right (increase) or to the left (decrease).
3. Sketch the new demand curve on the diagram and label it. Identify the new equilibrium price and quantity by finding the point where the new demand curve intersects the supply curve.
4. Compare the original equilibrium price and quantity to the new equilibrium price and quantity and describe the change.

Comprehensive Explanation

To illustrate this process, let us consider an example of a market for coffee. Suppose that the demand for coffee increases due to a rise in income, population, or preference for coffee. How will this affect the equilibrium price and quantity of coffee?

1. We can draw a demand and supply model for the coffee market before the change in demand, as shown in the figure below. The horizontal axis represents the quantity of coffee in kilograms and the vertical axis represents the price of coffee in dollars per kilogram. The demand curve D0 shows the relationship between the price and the quantity demanded of coffee, holding other factors constant. The supply curve S0 shows the relationship between the price and the quantity supplied of coffee, holding other factors constant. The initial equilibrium price and quantity are P0 and Q0, respectively, where the demand curve and the supply curve intersect.

2. Since the demand for coffee increases, the demand curve shifts to the right, from D0 to D1. This means that at any given price, consumers are willing and able to buy more coffee than before.
3. We can sketch the new demand curve D1 on the diagram and label it. The new equilibrium price and quantity are P1 and Q1, respectively, where the new demand curve and the supply curve intersect. The figure below shows the new equilibrium.

4. We can compare the original equilibrium price and quantity to the new equilibrium price and quantity and describe the change. The increase in demand causes the equilibrium price to rise from P0 to P1 and the equilibrium quantity to increase from Q0 to Q1. This means that the market for coffee experiences a higher price and a higher quantity as a result of the increase in demand.

Scenario

To give a detailed example with real data, let us assume the following values for the demand and supply functions of coffee:

• Demand: Qd = 100 – 10P
• Supply: Qs = 20 + 5P

where Qd and Qs are the quantity demanded and supplied of coffee in kilograms, and P is the price of coffee in dollars per kilogram.

Before the change in demand, we can find the equilibrium price and quantity by setting Qd = Qs and solving for P and Q:

• Qd = Qs
• 100 – 10P = 20 + 5P
• 15P = 80
• P = 80/15 = 5.33
• Q = Qd = Qs = 100 – 10P = 20 + 5P = 46.67

Therefore, the initial equilibrium price and quantity are 5.33 dollars per kilogram and 46.67 kilograms, respectively.

Suppose that the demand for coffee increases by 20% due to a rise in income, population, or preference for coffee. This means that the demand function shifts upward by 20%, or by 0.2 times the original demand function. The new demand function is:

• Qd = 100 – 10P + 0.2(100 – 10P)
• Qd = 120 – 12P

After the change in demand, we can find the new equilibrium price and quantity by setting Qd = Qs and solving for P and Q:

• Qd = Qs
• 120 – 12P = 20 + 5P
• 17P = 100
• P = 100/17 = 5.88
• Q = Qd = Qs = 120 – 12P = 20 + 5P = 50

Therefore, the new equilibrium price and quantity are 5.88 dollars per kilogram and 50 kilograms, respectively.

Excel Table

We can use an excel table to show the changes in demand, supply, price, and quantity before and after the change in demand, as shown below:

Result 

The result of the scenario is that the increase in demand for coffee causes the equilibrium price to increase by 0.55 dollars per kilogram and the equilibrium quantity to increase by 3.33 kilograms.