Managarial Economics@Azfar 112/11/2011

SHORT RUN & LONG RUN DEMAND

By –Azfar Alam

Managarial Economics@Azfar 2

Let us Know DEMAND………….

In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay .

The term demand signifies the ability or the willingness to buy a particular commodity at a given point of time.12/11/2011

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SHORT RUN DEMAND

Short-run demand refers to existing demand, with its immediate reaction to price changes, income fluctuation etc.

Period during which only some factors or variables can be changed because there is not enough time to change the others.

Some inputs variable, some fixed. New firms do not enter the industry, and existing firms do not exit.

 

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Demand in Short run

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LONG RUN DEMAND long-run demand is that which will ultimately exist

as a result of changes in pricing, promotion or product improvement, after enough time has elapsed to let the market adjust itself to the new situation.

All inputs variable, firms can enter and exit the market place.

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Short-run imbalances

Because of the stickiness of resources in the short run, in the short run there can be imbalances in supply and demand. Areas in which there is increased demand may encounter shortages until resources can be shifted to it and likewise areas of decreasing demand can see excess supply. The long run is assumed to have no imbalances of this sort.

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Reactions to changing demand in the short run versus the long run

When there is a change in demand in the short run, the market responds with a change in prices, that is, prices go up if demand increases and down if demand drops. However, in the long run, prices do not change with changes in demand. Instead, the quantity supplied changes because resources are assumed to be able to move freely into or out of the production of that particular good.

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Efficiency under the long-run model

Markets in the long run are at equilibrium when the price is equal to the minimum average total cost possible on the production cost curve. Also, at this point, marginal costs and the long-run average cost are equal. Further, when there is long-run equilibrium there is always short-run equilibrium.

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Reason for downward slope of the demand curve for labour in short run.

The labor demand curve slopes downward in the short run because companies have fixed capital, so each additional worker produces less and less additionally. Eventually, as supply and demand cross, the value a worker offers is exactly equal to his or her cost. After that point, the worker actually costs more.

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REFRENCES…….http://www.ehow.com/about_5072469_definition-long-run-economics.html

http://en.wikipedia.org/wiki/Long_run_and_short_run

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Any Questions??

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