Answer:
An increase in the demand for the commodity leads to an increase in the equilibrium price and quantity.
Let us understand how it happens: \[{{D}_{1}}{{D}_{1}}\] and \[{{S}_{1}}{{S}_{1}}\] represent the market demand and market supply respectively. The initial equilibrium occurs at \[{{E}_{1}},\] where the demand and the supply intersect each other. Due to the increase in the demand for the commodity, the demand curve will shift rightward parallely from \[{{D}_{1}}{{D}_{1}}\] to \[{{D}_{2}}{{D}_{2}},\] while the supply curve will remain unchanged. Hence, there will be a situation of excess demand, equivalent to \[({{q}_{3}}-{{q}_{1}})\]. Consequently, the price will rise due to excess demand. The price will continue to rise until it reaches \[{{E}_{2}}\] (new equilibrium), where \[{{D}_{2}}{{D}_{2}}\] intersects the supply curve \[{{S}_{1}}{{S}_{1}}\]. The equilibrium price increases from \[{{P}_{1}}\] to \[{{P}_{2}}\] and the equilibrium output increases from \[{{q}_{1}}\] to \[{{q}_{2}}\].
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