Answer to Question #212675 in Microeconomics for Cutie

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, since the higher the demand the higher the equilibrium price and vice versa. If 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:

prices of factors of production, government regulations or subsidies, technology, seller expectations, natural events, and the number of sellers.