What typically happens to equilibrium price when demand increases?

When demand increases, the equilibrium price typically shifts upward. This occurs because an increase in demand means that consumers are willing to purchase more of a good or service at any given price. As demand rises, the quantity demanded at the original equilibrium price exceeds the quantity supplied, leading to a shortage.

In response to this shortage, suppliers can raise their prices. As prices increase, suppliers are incentivized to produce more of the good, and eventually, a new equilibrium is established at a higher price, where the quantity demanded equals the quantity supplied again. The upward shift in equilibrium price reflects this new balance between supply and demand dynamics.

This understanding of how demand affects equilibrium price is fundamental to market behavior, illustrating the direct relationship between demand changes and price adjustments within a competitive market.