Graph walkthrough · Micro · Supply and demand

Buy now, before prices rise

Shoppers hear that the price of new phones will jump next month.

QuantityPrice0DSE₀

Step 1 of 3 · Before the rumor

The current phone sells for 700 dollars and 3 million are sold a month. The horizontal axis is millions of phones per month. The vertical axis is the price per phone. The market is at E₀.

The chain in words

  1. Step 1

    Before the rumor

    The current phone sells for 700 dollars and 3 million are sold a month. The horizontal axis is millions of phones per month. The vertical axis is the price per phone. The market is at E₀.

  2. Step 2

    Demand shifts right

    Expecting a higher price later, shoppers who would have waited buy now. At every price this month, more phones are wanted, so demand shifts right. At the old price of 700 dollars, stores run short: a shortage.

  3. Step 3

    Price rises now

    Retailers raise the price and pull in extra stock, a movement along the supply curve. The market settles at E₁: a higher price and more phones sold this month. The expected price rise has partly caused itself.

Takeaway. Expectations shift demand: expecting higher prices tomorrow raises demand today.

Draw it yourself

This shock: draw the graphFrost hits the coffee cropElectric cars and gasolineIncomes rise, diners eat out

More on the supply and demand graph

Frost hits the coffee cropElectric cars and gasolineIncomes rise, restaurants fill upCheaper chips, cheaper laptopsAvocados: a trend meets a droughtRent control creates a shortageA price floor for milkA sugar tax on sodaA subsidy for solar panels

Go deeper

Lesson: Shifts in Demand

The walkthrough shows the chain. The lesson explains why each link holds, with worked examples and practice questions that remember what you get wrong.
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