Incomes rise, restaurants fill up

The chain in words

1. Step 1

   Before the boom

   A restaurant meal costs about 20 dollars and the city's restaurants serve 50 thousand meals a week. The horizontal axis is thousands of meals per week. The vertical axis is the price of a meal. The market is at E₀.

2. Step 2

   Demand shifts right

   Restaurant meals are a normal good: people buy more of them as income rises. At every price, diners now want more meals, so demand shifts right. At the old price of 20 dollars there are more would-be diners than tables: a shortage.

3. Step 3

   Price rises to clear the market

   Full restaurants raise prices and add shifts. The higher price draws more meals out of the kitchens, a movement along the supply curve. The market settles at E₁: a higher price and more meals served.

Takeaway. A rise in demand raises both the price and the quantity.

Draw it yourself

More on the supply and demand graph