What is the effect of an increase in the demand for a good?

An increase in the demand for a good typically leads to a rise in its market price. This phenomenon occurs because, when demand increases, more consumers are willing to purchase the product at higher prices. As a result, sellers can charge more for their goods, leading to an increase in price.

In a competitive market, higher demand means that consumers are competing for a limited quantity of the good. This competitive pressure drives prices upward until a new equilibrium is reached, where the quantity demanded matches the quantity supplied at that higher price. Thus, the relationship between demand and price is one of direct correlation: as demand increases, the price tends to increase as well.

While it may be true that the quantity supplied could eventually increase to meet the new demand—due to producers responding to the higher prices—the immediate effect of increased demand is primarily reflected in the rising prices of the good.