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2.4 ELASTICITY IN THE LONG RUN VERSUS THE SHORT RUN 55

FIGURE 2.17 Short-
Run and Long-Run Demand
Price (dollars per thousand cubic feet) $4 increase in the price of
$6
Curves for Natural Gas
In the short run, an
natural gas from $4 to $6
(per thousand cubic feet)
induces consumers to
reduce their quantity
demanded from a rate of
40 trillion cubic feet per
year to 38 trillion cubic

run, though, when
consumers can fully ad-
Short-run Long-run feet per year. In the long
just to the price increase
demand curve demand curve from $4 to $6, the quan-
0 15 38 40 tity demanded falls to a
Quantity (trillions of cubic feet per year) rate of 15 trillion cubic
feet per year.

Similarly, firms sometimes cannot fully adjust their supply decisions in response short-run demand
to changes in price. For example, in the short run, a producer of semiconductors curve The demand curve
might not be able to increase its supply of chips in response to an increase in price by that pertains to the period
very much because it faces a capacity constraint––a facility can only produce so many of time in which consumers
chips, even if extra workers are hired. However, if the price increase is expected to be cannot fully adjust their
purchase decisions to
permanent, then the firm can expand the capacity of its existing facilities or build new changes in price.
ones. The increase in the quantity supplied as a result of the price increase will thus
be greater in the long run than in the short run. Figure 2.18 illustrates the distinction

Short-run Long-run
supply curve supply curve
$20
Price (dollars per megabyte) $10 FIGURE 2.18 Short-Run and Long-

Run Supply Curves for Semiconductors
In the short run, an increase in the price of
semiconductors from $10 to $20 per
megabyte induces a small increase in the
quantity supplied (from 100 million to 120
million megabytes of chips per year). In the
long run, though, when producers can
fully adjust to the price increase, the long-
0 100 120 250 run supply curve applies and the quantity
Quantity (million megabytes per year) supplied rises to a rate of 250 million
megabytes of chips per year.