In the long run firms can build or close factories

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  In the long run, firms can build or close  factories, enter new markets, etc.   In the short run, it may be hard to adjust  production amounts (especially in  agriculture).
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Note: just like demand, the flatter the supply  curve, the more elastic is the supply of the good.
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Applications: Case 1 Suppose that we have a supply curve. We have 2  demand curves – a flatter, elastic demand curve,  D E  and a steeper, inelastic demand curve, D I . Now suppose supply increases:
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Applications: Graph 1 Case 1: Elastic v. Inelastic Demand S P Q
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. S D E P Q P * Q*
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. S D I D E P Q P * Q*
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. S D I D E P Q S 1 P * Q*
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. S D I D E P Q S 1 P * P E Q* Q E
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. S D I D E P Q S 1 P * P E P I Q* Q I Q E
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. If D is inelastic, P*  to P I    and Q*  to Q I If D is elastic, P*  to P E     and Q*  to Q E If D is  inelastic , an   in S will  P by more and  Q  by less than if demand was elastic.
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Applications: Case 2 Suppose that we have a demand curve. We have  2 supply curves – a flatter, elastic supply curve,  S E  and a steeper, inelastic supply curve, S I . Now suppose demand increases.
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. Applications: Graph 2 Case 2: Elastic v. Inelastic Supply D P Q
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. D S E P* P Q* Q
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. D S E S I P* P Q* Q
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. D D 1 S E S I P* P Q* Q
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. D D 1 S E S I P E P* P Q* Q E Q
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. D D 1 S E S I P I P E P* P Q* Q I Q E Q
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Copyright © 2006 Nelson, a division of Thomson Canada Ltd. If S is elastic, P*  to P E  and Q*  to Q E If S is inelastic, P*  to P I  and Q*  to Q I If S is  inelastic , an   in D will  P by more and  Q  by less than if supply was elastic.
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