In economic models, the 'short run' refers to an analytical timeframe, not a specific duration, during which one or more variables are treated as exogenous, or held constant. A short-run equilibrium is analyzed under these fixed conditions. Typically, the variables held constant are those that take more time to adjust, such as a firm's capital stock or production capacity.

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An exogenous variable in an economic model is one whose value is determined outside the model. Its value is set by the modeler and is taken as a given, rather than being explained by the model's internal mechanics. In short-run analysis, variables that are difficult to adjust, such as capital stock, are often treated as exogenous.

Exogenous Variable

The differentiation between the short run and the long run is a common and useful framework in many economic models. [3] This distinction is particularly helpful in situations where certain economic variables can only adjust slowly, allowing for an analysis of outcomes both before and after these factors have fully adjusted.

Short-Run vs. Long-Run Analytical Framework

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Short Run in Economics

The 'long run' is an analytical timeframe in economics where variables that were held constant (exogenous) in the short run are allowed to become endogenous, meaning they can be adjusted and are determined by the model. The analysis of a long-run equilibrium involves modeling the consequences of these adjustments. This concept does not describe a specific period of time but rather a modeling approach where a firm can adjust all its inputs, including its capital goods.

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