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    Hello there,

    Just getting my head around this:

    An increase in price decreases the quantity demanded of a particular good

    But, when there is excess demand, producers increase supply at a higher price (It's the producers increasing the price right?) in order to meet this extra demand. They sell at a higher price because it is more profitable, and overall despite the fact that selling the good at a higher price decreases the quantity demanded, am I right in thinking that the higher price offsets the lower quantity demanded and makes the overall increase in supply more profitable for a firm?

    Thanks
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    Okay listen, most people new to econ have this question at one point or another.

    Quantity demanded has something to do with moving along the demand curve (due to a change in price)

    Demand is the demand curve as a whole. When we say demand increases we mean the entire curve shifts outward.

    Now take excess demand. Look at this diagram: your argument about increase in price reducing quantity demanded is the reason why price ends up at Q* rather than Qd

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    (Original post by danny111)
    Okay listen, most people new to econ have this question at one point or another.

    Quantity demanded has something to do with moving along the demand curve (due to a change in price)

    Demand is the demand curve as a whole. When we say demand increases we mean the entire curve shifts outward.

    Now take excess demand. Look at this diagram: your argument about increase in price reducing quantity demanded is the reason why price ends up at Q* rather than Qd

    Hi Danny,

    Thanks for your answer
    I understand that an increase in the price of a good will lead to a movement along the demand curve (more specifically a contraction), and that other factors such as an increase in income will shift the whole curve.

    So, are you saying that the explanation in my opening post is correct then? Cheers
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    (Original post by Tomatochuckers)
    Hi Danny,

    Thanks for your answer
    I understand that an increase in the price of a good will lead to a movement along the demand curve (more specifically a contraction), and that other factors such as an increase in income will shift the whole curve.

    So, are you saying that the explanation in my opening post is correct then? Cheers
    I suppose so, yes. For AS level micro you just have to kind of accept that prices will end up at the equilibrium price unless there's something like a price ceiling or whatever preventing it. Your explanation is fine - if there was excess demand, producers would be able to profitably increase prices.

    Posted from TSR Mobile
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    (Original post by TFP)
    I suppose so, yes. For AS level micro you just have to kind of accept that prices will end up at the equilibrium price unless there's something like a price ceiling or whatever preventing it. Your explanation is fine - if there was excess demand, producers would be able to profitably increase prices.

    Posted from TSR Mobile
    OK thanks for the help!
 
 
 
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