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:
- Increase in demand
- Decrease in demand
- Increase in supply
- 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
Steps in the adjustment process:
There are different steps that are involved in the process of adjustments. They can be as follows:
- Change in the determinant: 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.
- 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.
- Disruption of the market equilibrium: It is essential 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.
There would be changes that are seen in the market in order to get the unstable equilibrium back to normal.
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