markets set prices consumers optimizing within their constraints gives us demand and producers optimizing given their costs gives us Supply where they cross sets the equilibrium price competition between consumers to obtain this product drives the price up to equilibrium when it is too low in competition between producers to maximize profits drives the price down to equilibrium when it is too high and Arbitrage ensures that this equilibrium price Reigns for all consumers and producers in the market so this is how prices are set but how do prices change one way to change prices is to shift demand we know the things that shift the demand curve when consumers have higher incomes the demand for normal Goods increases when they have lower incomes the demand for inferior Goods increases demand will increase if the price of a substitute increases or if the price of a complement decreases we can also increase Demand by shifting consumer preferences in favor of it giving consumers positive expectations about purchasing the product now or reducing uncertainty about the purchase and of course demand increases when we add more consumers to the market reverse any of those scenarios and demand will decrease instead shifting to the left let's see how these changes will impact the equilibrium price here is a scenario which will impact market demand consider the market for Prime Beef what will happen as the developing World sees their incomes rise Prime Beef is a common grade given to beef the most common grades are Prime Choice and select and among those Prime is the best so it would be perfectly reasonable to assume that this is a normal good and that consumers with higher incomes will be willing to pay more for Prime Beef increasing demand when demand increases it shifts to the right and now we have an interesting situation at the old price before the shift in demand the market is out of equilibrium now the old price is too low consumers will begin to bid the price up as their higher demand has them buying more in the end at our new equilibrium the quantity has risen and so has the price wait doesn't this violate the law of demand we increase the price and people bought more of the good not quite we increased what people were willing to pay and so they want to buy more Prime Beef at every price the equilibrium ended up moving up along the supply curve and so the relevant law in this case is the law of supply consumers were paying more for beef and that encouraged producers to increase their quantity supplied here is another scenario consider the market for select beef what will happen as the developing World sees their incomes rise select beef has the lowest quality of the three common grades it would be reasonable to assume it is an inferior good that people buy less of when their incomes rise that means consumers with higher incomes will be willing to pay less for select beef decreasing demand demand will shift to the left and the price will be pulled down to this new equilibrium lower demand means the equilibrium price decreases and so does the equilibrium quantity here is a demand flowchart which summarizes this information one reason that prices change is due to a change in demand when demand decreases it means that consumers are willing to pay less than they used to be they will buy less of the product at every price this allows competition between sellers to push the price down but due to the law of supply they will also reduce the quantity they produce in the end the equilibrium price and quantity will decrease when demand increases it means that consumers are willing to pay more than they used to be competition between consumers will heat up and they will bid the price of this product up encouraging sellers to produce more of it in the end the equilibrium price and quantity will increase take a couple minutes and think about some products you buy where the price recently changed do you think that change was due to a change in demand for that product remember for demand to impact the price there needs to be a change in how much consumers are willing to pay for something