Buyers Expect Prices to Rise
An expected future price rise shifts demand right today, raising price and quantity now.
Buyers Expect Prices to Rise
Supply and DemandAn expected future price rise shifts demand right today, raising price and quantity now.
Equilibrium at Quantity 57, Price ($) 44
Start in equilibrium
The market for a games console begins in equilibrium, with supply and demand crossing at the current price.
Now try it yourself: shift the curves in a graded FRQ drill, or open this graph in the free sandbox.
Buyers Expect Prices to Rise, step by step
- 1
Start in equilibrium
The market for a games console begins in equilibrium, with supply and demand crossing at the current price.
- 2
A price rise is announced
Manufacturers announce that prices will rise next month because of a new tariff. Buyers who were going to purchase later decide to purchase now instead, so demand today shifts right.
- 3
Price and quantity rise now
The surge of buyers creates a shortage at the current price and pushes it up straight away. The market clears at a higher price and a larger quantity, before the announced increase has even taken effect.
- 4
Expectations act on the present
This is the step students most often skip: the expectation changes behaviour TODAY, so it shifts today's curve. The same logic applies on the supply side in reverse. If sellers expect a higher price next month they hold stock back, and supply today shifts left.
Where it ends up
Expectations of a future price rise increase demand TODAY, so price and quantity rise immediately.
Now draw it yourself
Same graph, graded on whether you move the right curve and leave the rest alone.
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