Question

1. How applicable is the assumption of market clearing to the market for fast food meals in the long run? Explain
2. How applicable is the the assumption of market clearing to the market for fast food meals in the Short run? Explain

Answer 1

1 - Prices are a lot flexible in long run as per market clearing asumption. Also , in the long run , the producers have time to adjust the output and consumer have time to adjust their demands as per the price in long run , hence in the long run , the market is cleared with no unsold stock lying at the market price. Hence this assumption hold true for long run.

2 - In the short run period , the prices are sticky. Also consumers have less time to adjust demand and producers are also not able to adjust their output in the short run. Hence the market clearing assumption fails in the short run and there is always a surplus or a shortage lying in the market.