What effect does an increase in demand have on equilibrium price and quantity?

When demand increases, it indicates that consumers are willing to purchase more of a good or service at each price level. This shift in consumer preferences leads to a rightward shift of the demand curve. As demand increases, sellers respond to the higher quantity demanded by raising prices, as they have the ability to do so in a more competitive market.

As a result, the equilibrium price rises because sellers are now able to charge more for the good due to heightened consumer interest. Concurrently, the equilibrium quantity also rises because the market will adjust to a new point where the increased demand meets the available supply. Therefore, both the equilibrium price and quantity will increase as a result of higher demand, making this the correct conclusion.

Understanding this relationship between demand, equilibrium price, and quantity is foundational in microeconomic theory, as it highlights how market dynamics respond to changes in consumer behavior.