Answer to Question #161231 in Microeconomics for SIMON

Question

“For supply to respond to an increase in demand the supplier must be aware that demand has indeed increased, however supply may not respond immediately to the change in demand”, Describe the factors that may attribute to this situation.

Answer 1

When demand exceeds supply, prices tend to rise, because the higher demand leads to a higher equilibrium price and vice versa. When at the current price level, the quantity demanded is more than quantity supplied, a situation of excess demand is said to arise in the market. The factors that may attribute to this situation are: elasticity of supply, ability to change the production, type of market structure etc.