James_Miller comments on Misapplied economics and overwrought estimates - Less Wrong

2 Post author: erratim 12 January 2015 05:10PM

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Comment author: James_Miller 14 January 2015 04:42:31AM 1 point [-]

Does this imply that short-run aggregate supply curves are independent of the level of investment currently existing in an industry?

No.

I'm guessing this is your argument: I buy fewer widgets, so firms invest less in widget factories, which changes the supply curve. But what's happening is you buy fewer widgets, which lowers price, which moves firms to a different point on their supply curve which has them building fewer factories.

This kind of thing is really easy to get confused about, and isn't important unless, as with the original post, you want to use supply and demand curves to trace out how you can move from one equilibrium to another.

Comment author: 9eB1 14 January 2015 06:48:16AM 1 point [-]

Then what is the difference between short run and long run aggregate supply? I'm confused.

Comment author: James_Miller 14 January 2015 06:55:56AM 1 point [-]

For every possible price the short run supply curve says how much you produce in the short run, whereas the long run supply curve says how much you will produce in the long run. In the simple perfect competition model the long run is enough time for firms to change all of its inputs.