Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 5 Firm Behavior and the Organization of Industry
Chapter 14 of 36 - Firms In Competitive Markets
Section 20 of 22
…
Figure 8 - An Increase in Demand in the Short Run and Long Run
Panel (a) initial condition
The market starts in a long-run equilibrium, point A.
In this equilibrium
· each firm makes zero profit
· the price equals the minimum average total cost (ATC)
…
Panel (b) short-run response
This shows what happens in the short run when demand rises from D1 to D2.
The equilibrium
· goes from point A to point B
· price rises from P1 to P2
· quantity sold in the market rises from Q1 to Q2
Because price now exceeds ATC firms make profits.
This encourages new firms to enter the market.
…
Panel (c) long-run response
This shows what happens in the long run after new firms enter the market.
· short-run supply curve shifts to the right from S1 to S2
· the equilibrium goes from point B to point C
· price has returned to P1
· the quantity sold has increased to Q3
· price is back to the minimum of ATC
· profits again are zero
· the market has more firms and greater supply to satisfy the greater demand
… …
short-run response
tankiteki taiō
短期的対応

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