Question

Why is it important for business managers to understand the operation of supply and demand both in the short and long term? Give examples of companies whose business has benefited or negatively affected by changes in the supply or demand of the market in which they are competing. Illustrate your arguments using the diagrams of the supply and demand model.

Answer 1

Considering the case of change in demand: In short run, when demand falls abruptly or due to some unexpected reason, demand curve shifts to its left from D to D1 while supply curve remains the same which cause prices to fall from P to P1 and output to fall from Y to Y1.
Real 9.
In long run, when producers get to know that the demand has fallen in the market, they tries to reduce the supply in the market such that there are no inventories. When they reduce supply, supply curve shifts to its left. Output falls to Y2 level and price rises to its initial level of P.
frul y ง 9,๕ - 3 entity

Managers needs to identify the cause which have reduce the demand in short run such that they can also respond to it by reducing its supply which will not raise its inventories. As this reduction in demand have negatively effected the producers.