A Change in Demand

Now let's put these concepts to work with some applications.

First, a pretty simple one. In the early stages of industrialization, in Britain, new jobs in industry made people better off -- for the first time, they had enough money income to buy food and improve their nutrition. That was the good news. The bad news was that the supply of food did not increase.

This means there was an increase in the demand for food, as shown in Figure 8:

Figure 8: Changing Equilibrium with an Increase in Demand

Before the increase in income, demand was D₁ and supply was S, so that the equilibrium quantity of food sold was Q₁ and the price per unit of food sold was p₁. However, the increase in income resulted in a shift of the demand curve rightward, as shown by D₂, and a new equilibrium quantity at Q₂ and a price of p₂.

Historically, this increase in the price of food led to agitation for the government to repeal the tariff on food (the "corn laws," as they were called) and move toward free trade. This controversy on the "corn laws" played a great role in the early evolution of economic thinking, as economists joined the argument on both sides.

Supply Changes