when prices cannot adjust immediately to changes in economic conditions or in the supply of money there is an inefficiency in the market that is a market disequilibrium exists as long as prices fail to adjust the presence of price stickiness is an important part of new keynesian macroeconomic theory since it can explain why markets might not reach equilibrium in the short run or even possibly in the long run 
the fact that price stickiness exists can be attributed to several different forces such as the costs to update pricing including changes to marketing materials that must be made when prices do change these are known as menu costs part of price stickiness is also attributed to imperfect information in the markets or irrational decision making by company executives some firms will try to keep prices constant as a business strategy even though it is not sustainable based on costs of material labor etc price stickiness appears in situations where a long term contract is involved a company that has a two year contract to supply office equipment to another business is stuck to the agreed price for the duration of the contract even if relevant conditions change such as the government raising taxes or production costs changing special considerationsprice stickiness can occur in just one direction if prices move up or down with little resistance but not easily in the opposite direction a price is said to be sticky up if it can move down rather easily but will only move up with pronounced effort when the market clearing price implied by new circumstances rises the observed market price remains artificially lower than the new market clearing level resulting in excess demand or scarcity sticky down refers to the tendency of a price to move up easily but prove quite resistant to moving down therefore when the implied market clearing price drops the observed market price remains artificially higher than the new market clearing level resulting in excess supply or a surplus the concept of price stickiness can also apply to wages when sales fall in a company the company doesn t resort to cutting wages as a person becomes accustomed to earning a certain wage they are not normally willing to take a pay cut and so wages tend to be sticky in his book the general theory of employment interest and money john maynard keynes argued that nominal wages display downward stickiness in the sense that workers are reluctant to accept cuts in nominal wages this can lead to involuntary unemployment as it takes time for wages to adjust to equilibrium from a business perspective it is often preferable to layoff less productive employees rather than cut pay across the board which could demotivate all workers including those that are most productive union and civil service wage contracts may also strongly contribute to downward stickiness of wages in the same way as other types of long term contracts 