adjustment speed

adjustment speed

the rate at which MARKETS adjust to changing economic circumstances. Adjustment speeds will tend to vary between different types of market. For example, in the case of the FOREIGN EXCHANGE MARKET, the exchange rate of a currency will tend to adjust rapidly to EXCESS SUPPLY or EXCESS DEMAND for it. A similar rapid response tends to characterize COMMODITY MARKETS and MONEY MARKETS, with commodity prices and INTEREST RATES changing quickly as supply or demand conditions warrant. Product markets (see PRICE SYSTEM) tend to adjust more slowly because the prices of products are usually fixed administratively and are generally changed infrequently in response to major supply or demand changes. Finally, some commodity markets, in particular the LABOUR MARKET, tend to adjust more slowly still because wages tend to be fixed through longer-term collective bargaining arrangements. See WAGE STICKINESS.
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