Final answer:
Business cycles represent the periodic fluctuations in economic activity over time. Prices tend to fluctuate in the short run while quantities are more responsive in the long run due to changes in elasticity of supply and demand over time. Recognition of these cycles is essential for economic prediction and planning.
Step-by-step explanation:
An up-and-down movement in demand that repeats over a lengthy time span, often observed in markets like auto sales, is known as a business cycle. In most markets for goods and services, short-term fluctuations are characterized by greater changes in prices due to inelasticity in supply and demand. However, over the long run, quantities tend to adjust more than prices as supply and demand become more elastic, allowing for greater adaptation to economic conditions, resulting in the cyclical patterns observed in sectors like the automotive industry.
The business cycle is crucial because it encompasses periods of expansion and contraction in the economy and is affected by various factors including consumer demand, economic policies, and global events which, in turn, impact employment levels, inflation, and overall economic growth. Understanding these cycles helps economists and businesses predict future economic performance.