Consider the bicycle market.
a) An increase in demand for bicycles may be caused, for example, by an increase in household incomes, seasonal demand (an increase in demand in spring and summer), and an increase in fuel prices (using bicycles instead of cars). An increase in demand is indicated by a shift of the demand curve to the right from position D1 to position D2. The equilibrium quantity increases from QE1 to QE2 and the equilibrium price increases from PE1 to PE2 (picture 1).
Picture 1. Increase of demand
b) A decrease in demand for bicycles may be caused, for example, by a decrease of household incomes, seasonal demand (decrease in demand in winter). A decrease in demand is indicated by a shift of the demand curve to the left from position D1 to position D2. The equilibrium quantity decreases from QE1 to QE2 and the equilibrium price decreases from PE1 to PE2 (picture 2).
Picture 2. Decrease of demand
c) An increase in the supply of bicycles may be caused, for example, by an improvement in the technology, reduction in production costs and an increase in the number of manufacturers. An increase in supply is indicated by shifting the supply curve to the right from position S1 to position S2. The equilibrium quantity increases from QE1 to QE2, and the equilibrium price decreases from PE1 to PE2.
Picture 3. Increase of supply
d) A decrease in the supply of bicycles can be caused, for example, by an increase in production costs, a decrease in the number of manufacturers. A decrease in supply is indicated by shifting the supply curve to the left from position S1 to position S2. The equilibrium quantity decreases from QE1 to QE2, and the equilibrium price increases from PE1 to PE2.
Picture 4. Decrease of supply