Final answer:
In the short term, when demand decreases but prices are sticky, the market ends up with an excess supply of goods and potential unemployment in the labor market.
Step-by-step explanation:
When there is a decrease in demand but prices do not adjust quickly, the market experiences a situation where the quantity of goods supplied is greater than the quantity demanded at the original price point. This condition is referred to as excess supply or a surplus in the market. Since the price is 'sticky' and takes time to adjust downward to the new equilibrium, sellers are unable to sell all their goods at the originally set price, leading to an accumulation of unsold inventory. In the labor market, this condition translates to unemployment, as the demand for labor decreases but wages remain the same, resulting in more workers than there are jobs available at the current wage rate.
Sticky prices in the goods market and sticky wages in the labor market, as depicted in graphical representations such as Figure 12.4, create immediate economic imbalances. These imbalances can contribute to unemployment and potentially a recession if the conditions persist.