In economics, adjustment refers to the process by which a market or economy responds to changes in external conditions, policies, or shocks. Adjustments can occur in prices, wages, employment levels, and investment as the economy seeks a new equilibrium or balance after a disturbance. Adjustments help markets clear (where supply meets demand) and can be seen in response to policy changes, technological advancements, or shifts in consumer preferences.
Adjustment is like a balancing act. If something changes—like if a new law affects how businesses operate or if a popular new product changes what consumers want to buy—then prices, how much people work, and other things might need to change to keep everything running smoothly. It’s about finding a new normal after something shakes up the usual way of doing things.
Adjustments are a fundamental concept across all areas of economics, from microeconomics (how individual businesses and consumers react) to macroeconomics (how the whole economy shifts). They are particularly important in understanding how economies recover from recessions, adapt to trade policies, or transition due to technological changes.
For Example, after a tax increase on cigarettes, consumers might buy fewer cigarettes, and companies might adjust by reducing production, leading to a new market equilibrium. In the same manner, an economy hit by a recession might adjust through lower interest rates, leading to increased investment and spending, and eventually, a recovery to a new level of economic activity.
Source: A to Z of Economics by Dr. NC Raghavi Chakravarthy