Changes in equilibrium or market price are caused by changes in the conditions of demand and supply. A change in equilibrium price can be caused by a change in demand when supply remains unchanged or a change in supply when demand remains unchanged. However, simultaneous change in both demand and supply in disproportionate manner can also cause the equilibrium to change.

1. Changes in equilibrium or market price caused by a change in demand

                A change in demand can either be an increase in demand or a decrease in demand.

1. Change in equilibrium price caused by an increase in demand

              An increase in demand leaving supply unchanged will cause the equilibrium price to increase as seen on the figure below;

Before an increase in demand, demand and supply were at DD and SS giving the equilibrium price OP. As a result of an increase in demand from DD to D1D1, the equilibrium price increases from OP to OP₂ moving the equilibrium point from E to E₁.

This will cause an, increase in quantity supplied from OQ to OQ₂·

1. Change in equilibrium price caused by a decrease in demand

               A decrease in demand leaving supply unchanged will cause the equilibrium price to decrease or fall. As seen on figure below.

Before a decrease in demand, demand and supply were at DD and SS giving the equilibrium price OP. As a result of a decrease in demand from DD to D₂D₂, the equilibrium price decreases from OP to OP₂ moving the equilibrium point from E to E2.

This will cause a decrease in quantity supplied from OQ to OQ2.

1. Changes in equilibrium or market price caused by changes or shifts in supply

                  A change in supply can either be an increase in supply or a decrease in supply ·

1. Change in equilibrium price caused by an increase in supply

                 An increase in supply leaving demand unchanged will cause the equilibrium price to fall as seen on figure below.

Before an increase in supply, demand and supply were at DD and SS giving the equilibrium price OP. As a result of an increase in supply, from SS to

S₁S₁, the equilibrium price decreases from OP to OP₁ moving the equilibrium point from E to E₁. This will cause an increase. In quantity demanded from OQ to OQ₁.

1. Change in equilibrium price caused by a decrease in supply

                  A decrease in supply leaving demand unchanged will cause the equilibrium price to increase as seen on figure below.

Before a decrease in supply, demand and supply were at DD and SS giving the equilibrium price OP. As a result of a decrease in supply, from SS toS₂S₂, the equilibrium price has increase from OP to OP₂ moving the equilibrium price from E to E₂·

This will cause a decrease in quantity demanded from OQ to OQ₂ ·

NB: Users of this book must remember that changes in the equilibrium price are due to either changes in demand or supply and this is usually caused by one of the many factors that affect demand or supply.