"When demand increases what happens to supply" relates to what happens when to an economy when there is a positive demand shock or "demand increases". It is important to understand that demand increasing and positive demand shocks are synonymous terms.
The first thing we need to note is that when we experience a positive demand shock, the demand curve shifts to the right. This means that consumers are demanding more goods for any given price level. This shift in demand creates a movement along the supply curve.
The end result is higher price and a higher quantity being produced. The logic as to why we move along the supply curve is that the higher price that consumers are willing to pay induces producers who previously were unwilling to supply goods to start producing goods.
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