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Short run and long run demand

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Azfar Alam
Azfar Alam

The document discusses short-run and long-run demand. Short-run demand refers to existing demand and its immediate reaction to price and income changes when some factors are fixed. Long-run demand is the demand that will exist after enough time for full market adjustments to new pricing or products. In the short-run, prices may change with demand fluctuations, but in the long-run supply adjusts through entry and exit of firms while prices remain stable. The long-run equilibrium occurs when price equals minimum average total cost on the production cost curve.

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By –Azfar Alam SHORT RUN & LONG RUN DEMAND 12/11/2011 Managarial Economics@Azfar 1
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 12/11/2011 a given point of time. Managarial Economics@Azfar 2
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. 12/11/2011 Managarial Economics@Azfar 3
Demand in Short run 12/11/2011 Managarial Economics@Azfar 4
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. 12/11/2011 Managarial Economics@Azfar 5
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. 12/11/2011 Managarial Economics@Azfar 6
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. 12/11/2011 Managarial Economics@Azfar 7
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. 12/11/2011 Managarial Economics@Azfar 8
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. 12/11/2011 Managarial Economics@Azfar 9
REFRENCES……. http://www.ehow.com/about_5072469_definition-long-run-economics.html http://en.wikipedia.org/wiki/Long_run_and_short_run 12/11/2011 Managarial Economics@Azfar 10
Any Questions?? 12/11/2011 Managarial Economics@Azfar 11
12/11/2011 Managarial Economics@Azfar 12

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Short run and long run demand

  • 1. By –Azfar Alam SHORT RUN & LONG RUN DEMAND 12/11/2011 Managarial Economics@Azfar 1
  • 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 12/11/2011 a given point of time. Managarial Economics@Azfar 2
  • 3. 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. 12/11/2011 Managarial Economics@Azfar 3
  • 4. Demand in Short run 12/11/2011 Managarial Economics@Azfar 4
  • 5. 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. 12/11/2011 Managarial Economics@Azfar 5
  • 6. 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. 12/11/2011 Managarial Economics@Azfar 6
  • 7. 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. 12/11/2011 Managarial Economics@Azfar 7
  • 8. 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. 12/11/2011 Managarial Economics@Azfar 8
  • 9. 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. 12/11/2011 Managarial Economics@Azfar 9
  • 11. Any Questions?? 12/11/2011 Managarial Economics@Azfar 11
  • 12. 12/11/2011 Managarial Economics@Azfar 12