Question

3. In the discussion of the long run and short run effects of the Aggregate demand and Aggregate supply, both effects are discussed. What are the short and long run effects?

Answer 1

Short run the time period when the firm has at least one of the variables as fixed. for example, a fruit seller will have its building and farm as fixed in the short run. Here, only labor and price can be changed to influence the output.

Long run is the time period when all the variables can be changed in the market and nothing is fixed, using the same example, in the long run the same fruit seller will be able to change the building and farm as well. here, all the inputs can be changed to affect the output.