Question

why are costs of adjusting prices are an order of magnitude smaller than those associated with adjusting quantities.

why are adjusting prices a smaller cost compared to adjusting quantities?

Answer 1

The magnitude of each of these cost components depends on the nature, size and location of the project as well as the management organization, among many considerations. The owner is interested in achieving the lowest possible overall project cost that is consistent with its investment objectives.
It is important for design professionals and construction managers to realize that while the construction cost may be the single largest component of the capital cost, other cost components are not insignificant. For example, land acquisition costs are a major expenditure for building construction in high-density urban areas, and construction financing costs can reach the same order of magnitude as the construction cost in large projects such as the construction of nuclear power plants.

Hence price of adjusting quantity will be more than the magnitude of cost adjustment because the cost of quantity is associated to the factor market and the type of current market prevailing.

The phrase price vs. quantity adjustment refers to the debate over the way in which the economy adjusts over the business cycle. Neoclassical economics claims that the price mechanism (prices, wages, and interest rates) is the most important adjustment mechanism in the economy, whereas Keynesians believe that the quantity of output and employment are the primary forces of adjustment during the business cycle, and that downward price and wage flexibility in fact tends to make things worse.The neoclassical view claims that under conditions of perfect competition, the economy is self-correcting and therefore would not require government intervention. When labor supply exceeds labor demand, competitive pressures would compel job-seekers to accept lower wages, which would encourage firms to hire more workers, thus increasing aggregate output and employment. If the newly produced output is entirely purchased by the newly hired workers, then workers’ savings would be equal to zero and the labor market would converge to full employment. However, under a more likely scenario, workers would save a portion of their income, which creates a potential problem for the self-adjusting mechanism of the market. The dual nature of saving means that on the one hand, from the workers’ perspective, saving is income not spent and is therefore a benign if not a desirable decision. On the other hand, from the firms’ perspective, saving is the equivalent of production not purchased. This problem, however, is dealt with in the loanable funds market. For neoclassical theory, the increased amount of savings would create an excess supply of savings relative to the demand for investment, thus driving down the interest rate due to bank competition to lend out their excess reserves. Consequently, a lower interest rate would encourage firms to borrow and invest in plant and equipment, thus continuing to hire workers up to the point where savings equal investment at full employment. The simultaneous adjustment of the labor market and loanable funds market requires price flexibility. Any obstacles to the price mechanism, such as minimum-wage laws, union bargaining wage policies, or central bank interest-rate target policies, would interfere with the self-regulating feature of the market, and are therefore undesirable.

Hence quantity adjustment is a broader concept given by JM Kynes which depends upon the rate of employment in the economy therefore equilibrium will be established with the help of demand and supply of money whereas price adjustment is a narrow concept which only depends upon demand and supply as said by classical economist.