What happens to the equilibrium price when demand increases?

• A. The equilibrium price typically falls.
• B. The equilibrium price typically remains unchanged.
• C. The equilibrium price typically rises.
• D. The equilibrium price fluctuates randomly.

Answer: (C)

When demand increases, consumers are willing to purchase more of a good or service at any given price. This surge in demand shifts the demand curve to the right. As demand exceeds supply at the original equilibrium price, there is upward pressure on prices, leading to an increase in the equilibrium price. Sellers recognize that they can charge higher prices since more buyers are competing for the available quantity, and they respond by raising their prices.

Ultimately, the market will reach a new equilibrium where the increased demand is matched by a quantity supplied at a higher price. This adjustment process reflects the fundamental principles of supply and demand: when demand rises, and supply remains constant, the equilibrium price will typically rise to reach a new market balance.