Difference between short term and long term in economics

In economics, one can speak of a short-term and long-term production and to establish the differences between the two it is necessary to know the meaning of each of these.

When you talk about short and long term, emphasis is placed on the possibility of changing and modifying certain factors related to production, and not exactly the time it lasts.

Namely, the long-term It is defined as the time necessary where the factors of production are variable. While the short term, is the time where at least one factor remains constant with the presence of another variable factor.

The duration of this period is not defined, so it can last from a few days to many years. In this way, it is possible to say that the main difference between both periods it is the productive process which differs, where the endowment of capital is necessary.

Fixed and variable expenses

Expenses it is another factor that tends to differ between the two periods. When you work at short term, the company takes over fixed and variable expenses.

As for the fixed costs, are not related to the activity carried out by the company, becoming a variable that does not affect this activity, these are usually factors such as the size of production or the capital of the factory. However variable expenses if they are related to the amount of activity that is being carried out, and can easily vary with factors such as the increase in hours or employees. In this way, every company has the responsibility of measuring production as long as the variable costs are fully covered, so that it generates profit.

When it comes to a long term, there is greater mobility, both entering and leaving the market, something that is not very feasible when it comes to short-term periods. In this case, it can be considered a practically zero profit, where the meaning of the same refers to benefits where different companies are attracted or repelled according to their success or losses in the market.

Difference in benefits

A difference in terms of short and long term benefits in economics, is that short term, it is possible to obtain a greater amount of benefits, Unlike long term where constant input and output makes these profits disappear, being null.

Macroeconomic application

According to the macroeconomic theory, the short term is characteristic of fixed wages and prices. While long-term they can be quite flexible. In these theories, it is often assumed that prices and wages require a longer time to change according to the various drag conditions in the market.

Law of diminishing returns

This law refers to the fact that when an increase is observed in the short-term variable inputs, the return of these diminish with time. For example, when the labor force is increased, the first group of workers will have a greater production than the second, this is because in the beginning there was additional capital, which had not been used.