I have been trying to google it for the last 2 hours for an explanation and I really don’t understand it. Does it have to do with certain companies seeing changes in the near or far future, depending on the industry? Anything helpful will be appreciated.
In: Economics
Short run probably refers to very quick actions taken by the actors. For producers, for example, if demand reduces, they can furlough workers, reduce shifts, etc. If demand increases, they can hire more workers etc. These actions can be put into effect fairly quickly (weeks, months) but there are obviously limits (factories cannot run more than 24hrs/day, equipment cannot run beyond their designed speed). Different actors in the economy can take various actions in the short run.
In the long run, the actors can enter or exit industries, shut down factories or build new ones. Invest in new technology, design new products etc etc. These typically means a “permanent” adjustment to the available supply or cost of production. And they also typically take a long period to take effect (years)
Since the economy consists of many linked components (a factory both supplies and purchases from others) in a network, in the long run, the entire network adjusts to the new equilibrium.
There is no fixed definition of what consists of a short run effect or long run effect. These are conceptual ideas designed to help analyze behavior of the players.
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