Question

How does supply and demand affect prices in the market?

Answer 1

Demand for and supply of a good are influenced by various non price factors. In equilibrium, the forces of demand and supply determine the market equilibrium price and quantity. But when there are changes in factors affecting them, they exhibit a movement or a shift and bring changes in the market.

When own price of a good changes, say during a price ceiling or a price floor, there is a movement along the demand and supply curves showing a possible shortage or surplus respectively.

When factors other then the own price of a good change, they bring shifts in the demand or/and supply curves thereby bringing changes in both price and quantity. Factors that can shift demand curve allow the market to experience a same direction change in the price and the quantity. Factors that can shift supply curve allow the market to experience an opposite direction change in the price and the quantity.