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Short-Run vs. Long-Run

Aug212017

What happens to you when you start running? At first you have lots of energy and your muscles are fresh, you can run quite fast. However, if you keep running fast then you will get tired, you’ll lose your breath and your muscles will hurt. Naturally, you’ll need to slow down. Running, therefore, has different short-run and long-run effects on your body.

And it’s the same with economics; an economic action could have different affects in the short-run and long-run. In economics, we define the short-run as that period of time in which at least one factor of production is fixed (usually land and/or capital). But in the long-run, all the factors of production are variable.




For example, in the short-run, Coca Cola can change the amount of raw materials or labour that they use to produce their drinks, but they can’t change the size of their factory because it takes a long time to build a new factory. In the long-run, Coca Cola can change the size of their factories, order new raw materials and hire a lot more workers. In this example, the short-run is probably 2-3 years, the time it takes to build a new factory and enter the long-run.

Also, for instance, if the government boost government spending then employment will probably rise in the short-run. Although, in the long-run, all the extra jobs that have been created will lead to a higher AD and, possibly, a rise in inflation.

If you’re writing an economics essay, think about the possible short-run and long-run affects. If you describe the short-run affects then you can evaluate with the long-run affects.

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