The Le Chatelier principle Our analysis of supply response in this chapter focused on the fact that firms have greater flexibility in the long run both in their hiring of inputs and in their entry decisions. For this reason, price increases resulting from an increase in demand may be large in the short run, but price will tend to return toward its initial equilibrium value over the longer term. Paul Samuelson noted that this tendency resembled a similar principle in chemistry in which an initial disturbance to an equilibrium tends to be moderated over the longer term. He therefore introduced the term used in chemistry (the Le Chatelier principle) to economics. To examine this principle, we now write the supply function as S 1P, t2, where t represents time and our discussion in this chapter shows why SP,t . 0—that is, the effect of a price increase on quantity supplied becomes greater over time.

a. Using this new supply function, differentiate Equations