Why will an increase in the demand for Christmas trees lead to a large price increase at first but a much smaller increase in the long run? The answer lies in the behavior of the industry supply curve—the relationship between the price and the total output of an industry as a whole. The industry supply curve is what we referred to in earlier chapters as the supply curve or the market supply curve. But here we take some extra care to distinguish between the individual supply curve of a single firm and the supply curve of the industry as a whole.

As you might guess from the previous section, the industry supply curve must be analyzed in somewhat different ways for the short run and the long run. Let’s start with the short run.