1. The short-run supply curve is steeper than the long run supply curve because of the principle of _________

2. Arrows up or down: Suppose the demand for shirts increases. In the short run, the price _________ by a relatively large amount. As firms enter the market, the price _________. In the new long-run equilibrium, there is a net in_________ price relative to the old equilibrium.

3. An increase in demand causes a large initial upward _________ (jump/slide) in price, followed by a downward _________ (jump/slide) to the new long run equilibrium price.

4. Because of differences in the severity of restrictions on residential development Britain has _________ (more/fewer) housing booms and busts than the United States.

5. Increase in Housing Demand in Britain versus the United States. Suppose that in both Britain and the United States, the initial equilibrium price of housing is $200,000. Britain has more severe restrictions on residential development in the short run. Suppose the demand for housing increases by the same amount in the two countries.

a. Draw a set of supply and demand curves showing the effects on housing prices in the short run.

b. The price increase is larger in_________ because that country has a relatively_________ supply curve.

c. Suppose the long-run supply curves in the two countries have the same slope. Show the long-run effects of the increase in demand.

d. In the long run, Britain s price of housing is _________ (higher/lower/the same).