Economics, 3rd Edition

Example: A Change in Demand 

Suppose that one summer the weather is very hot. How does this event 

affect the market for milk? To answer this question, let’s follow our three steps:

1. 

The hot weather affects the demand curve by changing peoples’ taste for milk. That is, the weather 

changes the amount of milk that people want to buy at any given price.

2. 

Because hot weather makes people want to drink more milk, make refreshing milk shakes or producers 

of ice cream buy more milk to make ice cream, the demand curve shifts to the right. Figure 3.8 shows 

this increase in demand as the shift in the demand curve from D

1

 to D

2

. (What you have to remember 

now is that demand curve D

1

 does not exist anymore and so we have shown it as a dashed line.) This 

shift indicates that the quantity of milk demanded is higher at every price. At the existing market price 

of 

€0.50 buyers now want to buy 19,000 litres of milk but sellers are only offering 13,000 litres for sale 

at this price. The shift in demand has led to a shortage of milk in the market of 6,000 litres represented 

by the bracket.

3. 

The shortage encourages producers to increase the output of milk (a movement along the supply 

curve). There is an increase in quantity supplied. But, the additional production incurs extra costs and 

so a higher price is required to compensate sellers. As sellers increase the amount of milk offered 

for sale as price rises. Consumers behave differently. Some consumers who were willing to buy milk 

at 

€0.50 are not willing to pay more and so drop out of the market. As price creeps up, therefore, 

there is a movement along the demand curve representing these consumers who drop out of the 

market. The market forces of supply and demand continue to work through until a new equilibrium 

is reached. The new equilibrium price is now 

€0.60 per litre and the equilibrium quantity bought and 

sold is now 16,000 litres. To compare our starting and finishing positions, the hot weather which 

caused the shift in the demand curve has led to an increase in the price of milk and the quantity of 

milk bought and sold.