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Adjustment Process refers to the market adjustment process. The market adjustment process can be of two types. They are the single shift type and the double shift type.
When the quantity or price of the object changes with a change in either the demand or the supply is called as a single shift. It can be of four types according to increase or decrease in demand or supply. They are due to:
- Decrease in demand
- Increase in supply
- Increase in demand
- Decrease in supply
When there is a change in price or quantity of the substance due to change in both the demand and supply, it is called as the double shift. It could be due to one of the four following cases:
- Demand and Supply Increase
- Demand and Supply Decrease
- Demand Increase and Supply Decrease
- Demand Decrease and Supply Increase
Six Steps in the adjustment process:
There are six different steps that are involved in the process of adjustments in the markets around the world. They can be as follows:
1. Change in the Determinants: In this case, the determinant could be either a demand determinant or a supply determinant, or sometimes it could be both. To be very clear, the process of market adjustment is actually an analysis of how these determinants affect the markets. This way, they are the ones, which always start the market adjustment process.
2. The shift in The Curve: The change in the determinant leads to a change in the curve to shift. The shift is in the demand curve or in the supply curve according to the determinant type. There are the shifts that move the market from their balance positions.
3. Disruption of The Market Equilibrium: It is important to know that due to the shift in the demand or supply curve, you will observe a shortage or surplus of the product. This is due to the disruption caused in the market due to the shift in the curve. It should also be remembered that a shortage is created due to an increase in demand or the decreased in supply also. The reverse holds good for the surplus. This condition arises due to the unchanged prices of the product.
4. Change in Price: Now due to the shortage of the product, people are ready to pay more and get the product, raising the price of the substance in demand. In the case of a surplus, people would buy from the person who gives it to them at the least price. This way the prices decrease in the case of surplus.
5. Change In Price Changes The Quantity In Demand And Also In Supply: When the sellers try to increase the price when there is a shortage, gradually the demand decreases, forcing him to lower his prices again. The reverse applies for the case of surplus.
6. Elimination of Market Imbalance: When there is a change in the quantity in demand and supply, there is always a tendency to get back to the market equilibrium. This way the market equilibrium get backs to the normal.