Figure 4-4 Short-Run and Long-Run Equilibrium Following an
Increase in Supply
movement down the relatively inelastic short-run demand curve; it thus
causes a large fall in price but only a small increase in quantity. In the
long run, demand is more elastic; thus long-run equilibrium has price and
quantity above those that prevailed in short-run equilibrium.
The magnitude of the changes in the equilibrium price and quantity
following a shift in supply depends on the time allowed for demand to
adjust. The initial equilibrium is at with price and quantity
Supply then increases and the supply curve shifts from to
Immediately following the increase in supply, the relevant demand curve
is the short-run curve and the new equilibrium immediately
following the supply shock is Price falls sharply to and quantity
rises only to In the long run, the demand curve is the more elastic
one given by and equilibrium is at The long-run equilibrium
price is (greater than ), and quantity is (greater than ).
The terminology for elasticity and the interpretation of various elasticity
values is difficult at the beginning, but the more you work with the
E 0 , p 0 Q 0
S 0 S 1.
DS,
ES. pS,
QS.
DL, EL.
pL pS QL QS