Short Run Long Run Demand Curve

Short Run Long Run Demand Curve Assignment Help

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Relationship between short–run and long–run demand curve

Demand curve is a diagrammatical relationship between quantity demanded of a good and its price. When price goes up quantity demanded decreases and vice versa. Thus, quantity demanded at each price is the manifestation of consumer’s reaction to that price which causes demand to be smaller at higher price and larger at a lower price. But how quick this response of demand to price will be depend upon the time allowed for adjustment of consumers to the new price. In case of the non – durable goods such as corn flakes or other consumer goods, the full response of demand to price changes occurs quickly. But there are other goods, like machines, motor cars or other durable goods where a change in price may not cause much change in demand in short period but the adjustment process may take a long time and thus reaction may occur over a longer period. Thus, we may have two types of demand curves for durable goods, uiz. a short period demand curve that reflects the response of quantity demanded to changes in price when the supply of that good and its substitutes is taken to be given or  fixed, and the long –run demand curve which shows response of quantity demanded to changes in price after sufficient time is allowed for all adjustments. We can understand and this by the following example. Suppose, price of electricity increases. The initial reaction will reduce its consumption. But the consumers cannot immediately adjust to a very low level of consumption since they have been using electricity for a variety of purposes and final themselves unable too much reduce their consumption, the resulting reduction in demand may be less than the percentage change in price. Thus, the initial response will be along the short – run demand curve that is relatively inelastic. Over longer time, however, people may start using gas appliance for cooking, heating and may use solar energy in place of electricity for many other purposes. Such adjustments in the long – run will cause a larger drop in demand for electricity relative to increase in its price. Thus, we may move to a long – run demand curve for electricity which is more elastic than the short – run demand curve.


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