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Finance: Short Run and Long Run Supply and Demand

Why do you believe that it is important for managers to understand both short run and long run supply and demand? Cite one hypothetical or real life example that illustrates your response.

The demand for audio CDs has greatly increased over the last decade. According to the laws of supply and demand, price rises as demand increases. The price of CDs, however, has fallen during this period. Explain the apparent contradiction.

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Why do you believe that it is important for managers to understand both short run and long run supply and demand? Cite one hypothetical or real life example that illustrates your response.

In economics, prices play a crucial role within the efficiency story. As a result, both producers and consumers rely centrally on price as changes constantly occur within the cost of making alternative decisions. Economic theory states that the price of commodities lean towards the optimal point at which both short-run and long-run demand is met by supply. The price so determined is usually referred to as the market-clearing price (supply and demand).

Managers need to thus understand both short run and long run supply and demand in the determination of aggregate demand within their organizations and how to effectively meet this. Also ...

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This solution provides a detailed discussion on the importance of managers understanding both short run and long run supply and demand.

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