Future Business Leader Achievments (FBLA) Economics Practice Exam

How is the distinction between short run and long run defined?

1. By government classification

2. By nature of consumer products

3. By availability of resources

4. By changes in market conditions

The correct answer is: By government classification

The distinction between short run and long run is fundamentally defined by the availability of resources. In economics, the short run refers to a period during which at least one factor of production is fixed, meaning that not all resources can be varied in response to changes in demand or other economic conditions. For example, a factory may have a certain number of machines that cannot be increased immediately, leading to limitations in output. In contrast, the long run is characterized by the flexibility of all inputs, allowing firms to change all factors of production. This means that businesses can adjust their physical capacity, labor, and other resources to meet demand more effectively. Therefore, the ability to change resource input levels is what differentiates short-run and long-run periods in economic analysis. Understanding this distinction is crucial for analyzing production decisions, cost structures, and market responses over different time horizons. The correct answer emphasizes that resource availability is the key factor influencing whether we consider a situation to be in the short run or long run.