Shortage

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Unemployed men queue outside a depression soup kitchen in United States during the Great Depression. Unemployed men queued outside a depression soup kitchen opened in Chicago by Al Capone, 02-1931 - NARA - 541927.jpg
Unemployed men queue outside a depression soup kitchen in United States during the Great Depression.
A 2014 image of product shortages in Venezuela. Escasez en Venezuela, Central Madeirense 8.JPG
A 2014 image of product shortages in Venezuela.

In economics, a shortage or excess demand is a situation in which the demand for a product or service exceeds its supply in a market. It is the opposite of an excess supply (surplus).

Contents

Definitions

In a perfect market (one that matches a simple microeconomic model), an excess of demand will prompt sellers to increase prices until demand at that price matches the available supply, establishing market equilibrium [1] [ citation needed ]. In economic terminology, a shortage occurs when for some reason (such as government intervention, or decisions by sellers not to raise prices) the price does not rise to reach equilibrium. In this circumstance, buyers want to purchase more at the market price than the quantity of the good or service that is available, and some non-price mechanism (such as "first come, first served" or a lottery) determines which buyers are served. So in a perfect market the only thing that can cause a shortage is price.

In common use, the term "shortage" may refer to a situation where most people are unable to find a desired good at an affordable price, especially where supply problems have increased the price. "Market clearing" happens when all buyers and sellers willing to transact at the prevailing price are able to find partners. There are almost always willing buyers at a lower-than-market-clearing price; the narrower technical definition doesn't consider failure to serve this demand as a "shortage", even if it would be described that way in a social or political context (which the simple model of supply and demand does not attempt to encompass).

Causes

Shortages (in the technical sense) may be caused for the following:

Effects

Decisions which result in a below-market-clearing price help some people and hurt others. In this case, shortages may be accepted because they theoretically enable a certain portion of the population to purchase a product that they couldn't afford at the market-clearing price. The cost is to those who are willing to pay for a product and either can't, or experience greater difficulty in doing so.

In the case of government intervention in the market, there is always a trade-off with positive and negative effects. For example, a price ceiling may cause a shortage, but it will also enable a certain percentage of the population to purchase a product that they couldn't afford at market costs. Economic shortages caused by higher transaction costs and opportunity costs (e.g., in the form of lost time) also mean that the distribution process is wasteful. Both of these factors contribute to a decrease in aggregate wealth.

Shortages may cause:

Examples

Empty supermarket shelves in the dry pasta section due to panic-buying as the result of the 2020 COVID-19 coronavirus outbreak. Dried pasta shelves empty in an Australian supermarket.jpg
Empty supermarket shelves in the dry pasta section due to panic-buying as the result of the 2020 COVID-19 coronavirus outbreak.

Many regions around the world have experienced shortages in the past.

Shortages and "longages"

Garrett Hardin emphasised that a shortage of supply can just as well be viewed as a "longage" of demand. For instance, a shortage of food can just as well be called a longage of people (overpopulation). By looking at it from this view, he felt the problem could be better dealt with. [11]

Labour shortage

In its narrowest definition, a labour shortage is an economic condition in which employers believe there are insufficient qualified candidates (employees) to fill the marketplace demands for employment at a wage that is mostly employer-determined. Such a condition is sometimes referred to by economists as "an insufficiency in the labour force." An ageing population and a contracting workforce and a birth dearth may curb U.S. economic expansion for several decades, for example. [12]

Wage factors

Wage levels have been suggested as one way to measure a labour shortage. However, that often does not match people's common perceptions. For example, if wages alone are the best measure of labour shortages, then that would imply that doctors, instead of farm workers, should be imported because doctors are far more expensive than farm workers. However, there are institutionally-imposed limits on the number of doctors that are allowed to be licensed.[ citation needed ] If foreign migrant workers were not allowed into a country, farm wages may go up but probably not enough to approach the wages of doctors.

The Atlantic slave trade (which originated in the early 17th century but ended by the early 19th century) was said to have originated from perceived shortages of agricultural labour in the Americas (particularly in the Southern United States). It was thought that bringing African labor was the only means of malaria resistance available at the time. [13] Ironically, malaria seems to itself have been introduced to the "New World" via the slave trade. [14]

See also

Related Research Articles

Microeconomics Behavior of individuals and firms

Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics focuses on the study of individual markets, sectors, or industries as opposed to the national economy as whole, which is studied in macroeconomics.

Supply and demand Economic model of price determination in microeconomics

In microeconomics, supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, in a competitive market, the unit price for a particular good, or other traded item such as labor or liquid financial assets, will vary until it settles at a point where the quantity demanded will equal the quantity supplied, resulting in an economic equilibrium for price and quantity transacted. It forms the theoretical basis of modern economics.

Deadweight loss Measure of lost economic efficiency

Deadweight loss, also known as excess burden, is a measure of lost economic efficiency when the socially optimal quantity of a good or a service is not produced. Non-optimal production can be caused by highly concentrated wealth and income, monopoly pricing in the case of artificial scarcity, a positive or negative externality, a tax or subsidy, or a binding price ceiling or price floor such as a minimum wage.

In economics, economic equilibrium is a situation in which economic forces such as supply and demand are balanced and in the absence of external influences the values of economic variables will not change. For example, in the standard text perfect competition, equilibrium occurs at the point at which quantity demanded and quantity supplied are equal. Market equilibrium in this case is a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. This price is often called the competitive price or market clearing price and will tend not to change unless demand or supply changes, and quantity is called the "competitive quantity" or market clearing quantity. But the concept of equilibrium in economics also applies to imperfectly competitive markets, where it takes the form of a Nash equilibrium.

Rationing Controlled distribution of scarce resources, goods, or services

Rationing is the controlled distribution of scarce resources, goods, services, or an artificial restriction of demand. Rationing controls the size of the ration, which is one's allowed portion of the resources being distributed on a particular day or at a particular time. There are many forms of rationing, although rationing by price is most prevalent.

Budget constraint

In economics, a budget constraint represents all the combinations of goods and services that a consumer may purchase given current prices within his or her given income. Consumer theory uses the concepts of a budget constraint and a preference map as tools to examine the parameters of consumer choices. Both concepts have a ready graphical representation in the two-good case. The consumer can only purchase as much as their income will allow, hence they are constrained by their budget. The equation of a budget constraint is where P_x is the price of good X, and P_y is the price of good Y, and m = income.

Giffen good Product that people consume more of as the price rises

In economics and consumer theory, a Giffen good is a product that people consume more of as the price rises and vice versa—violating the basic law of demand in microeconomics. For any other sort of good, as the price of the good rises, the substitution effect makes consumers purchase less of it, and more of substitute goods; for most goods, the income effect reinforces this decline in demand for the good. But a Giffen good is so strongly an inferior good in the minds of consumers that this contrary income effect more than offsets the substitution effect, and the net effect of the good's price rise is to increase demand for it. Also known as Giffen paradox. A Giffen good is considered to be the opposite of an ordinary good.

In classical economics, Say's law, or the law of markets, is the claim that the production of a product creates demand for another product by providing something of value which can be exchanged for that other product. So, production is the source of demand. In his principal work, A Treatise on Political Economy, Jean-Baptiste Say wrote: "A product is no sooner created, than it, from that instant, affords a market for other products to the full extent of its own value." And also, "As each of us can only purchase the productions of others with his own productions – as the value we can buy is equal to the value we can produce, the more men can produce, the more they will purchase."

Effective demand Demand in a constrained marketplace

In economics, effective demand (ED) in a market is the demand for a product or service which occurs when purchasers are constrained in a different market. It contrasts with notional demand, which is the demand that occurs when purchasers are not constrained in any other market. In the aggregated market for goods in general, demand, notional or effective, is referred to as aggregate demand. The concept of effective supply parallels the concept of effective demand. The concept of effective demand or supply becomes relevant when markets do not continuously maintain equilibrium prices.

Consumer goods in the Soviet Union Overview of the topic

Consumer goods in the Soviet Union were usually produced by a two-category industry. Group A was "heavy industry", which included all goods that serve as an input required for the production of some other, final good. Group B was "consumer goods", final goods used for consumption, which included food, clothing and shoes, housing, and such heavy-industry products as appliances and fuels that are used by individual consumers. From the early days of the Stalin era, Group A received top priority in economic planning and allocation so as to industrialize the Soviet Union from its previous agricultural economy.

Market clearing

In economics, market clearing is the process by which, in an economic market, the supply of whatever is traded is equated to the demand so that there is no leftover supply or demand. The new classical economics assumes that in any given market, assuming that all buyers and sellers have access to information and that there is no "friction" impeding price changes, prices always adjust up or down to ensure market clearing.

Price controls Governmental restrictions on the prices that can be charged for goods and services

Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of goods even during shortages, and to slow inflation, or, alternatively, to ensure a minimum income for providers of certain goods or to try to achieve a living wage. There are two primary forms of price control: a price ceiling, the maximum price that can be charged; and a price floor, the minimum price that can be charged. A well-known example of a price ceiling is rent control, which limits the increases in rent. A widely used price floor is minimum wage. Historically, price controls have often been imposed as part of a larger incomes policy package also employing wage controls and other regulatory elements.

"Shortage economy" is a term coined by Hungarian economist János Kornai, who used this term to criticize the old centrally-planned economies of the communist states of the Eastern Bloc.

János Kornai was a Hungarian economist noted for his analysis and criticism of the command economies of Eastern European communist states. He also covered macroeconomic aspects in countries undergoing post-Soviet transition. He was emeritus professor at both Harvard University and Corvinus University of Budapest. Kornai was known to have coined the term shortage economy to reflect perpetual shortages of goods in the centrally-planned command economies of the Eastern Bloc.

Walras's law is a principle in general equilibrium theory asserting that budget constraints imply that the values of excess demand must sum to zero regardless of whether the prices are general equilibrium prices. That is:

Competition (economics) Rivalry between firms; ability of companies to take each others market share in a given market

In economics, competition is a scenario where different economic firms are in contention to obtain goods that are limited by varying the elements of the marketing mix: price, product, promotion and place. In classical economic thought, competition causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products. The greater the selection of a good is in the market, prices are typically lower for the products, compared to what the price would be if there was no competition (monopoly) or little competition (oligopoly). This is because there is now no rivalry between firms to obtain the product as there is enough for everyone. The level of competition that exists within the market is dependant on a variety of factors both on the firm/ seller side; the number of firms, barriers to entry, information availability, availability/ accessibility of resources. The number of buyers within the market also factors into competition with each buyer having a willingness to pay, influencing overall demand for the product in the market.

Rationing in Cuba

Rationing in Cuba is organized by the government and implemented by means of a Libreta de Abastecimiento assigned to every individual. The system establishes the amounts of subsidized rations each person is allowed to receive through the system, and the frequency at which supplies can be obtained. While the food rations are not free, the ration fees are a small fraction of the actual price of the goods. Purchases of the goods can also be made outside of the system, but they are typically too expensive for most Cubans to afford.

In economics, an excess supply, economic surplus market surplus or briefly surply is a situation in which the quantity of a good or service supplied is more than the quantity demanded, and the price is above the equilibrium level determined by supply and demand. That is, the quantity of the product that producers wish to sell exceeds the quantity that potential buyers are willing to buy at the prevailing price. It is the opposite of an economic shortage.

Factor market In economics, a market where resources used in the production process are bought and sold

In economics, a factor market is a market where factors of production are bought and sold. Factor markets allocate factors of production, including land, labour and capital, and distribute income to the owners of productive resources, such as wages, rents, etc.

This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.

References

  1. Tucker (2014) Economics Today
  2. "Depression and the Struggle for Survival". Library of Congress. Retrieved 30 March 2020. The Great Depression of the 1930s hit Mexican immigrants especially hard. Along with the job crisis and food shortages that affected all U.S. workers, Mexicans and Mexican Americans had to face an additional threat: deportation.
  3. "Potato eaters shot". International Institute of Social History. 7 July 1917.
  4. "Potato riots in Amsterdam". Bendigo Advertiser . 6 July 1917. p. 7 via National Library of Australia.
  5. "Venezuela seizes warehouses packed with medical goods, food". Reuters. 2014-10-24. Retrieved 2015-12-07.
  6. "Why are Venezuelans posting pictures of empty shelves?". BBC. 8 January 2015. Retrieved 10 January 2015.
  7. Cawthorne, Andrew (21 January 2015). "In shortages-hit Venezuela, lining up becomes a profession". Reuters . Retrieved 17 June 2015.
  8. Schaefer Muñoz, Sara (22 October 2014). "Despite Riches, Venezuela Starts Food Rationing; Government Rolls Out Fingerprint Scanners to Limit Purchases of Basic Goods; 'How Is it Possible We've Gotten to This Extreme'". Dow Jones & Company Inc. The Wall Street Journal . Retrieved 11 November 2014.
  9. "Sudan: Frustration grows over fuel, bread shortages". Al Jazeera. 11 March 2020.
  10. Tkyo, Kelly (29 February 2020). "Coronavirus fears empty store shelves of toilet paper, bottled water, masks as shoppers stock up". USA Today .
  11. Video Interview with Garrett Hardin: Longages and Overpopulation Predictions Educational Communications program 803, 1990
  12. Shrinking labour force may curb U.S. expansion for two decades
  13. "As American as…Plasmodium vivax?"
  14. "UCI: New World malaria linked to slave trade."