Economic shortageFrom Wikipedia, the free encyclopedia

An economic shortage is a disparity between the amount demanded for

a product or service and the amount supplied in a market. Specifically, a shortage occurs when

there is excess demand; therefore, it is the opposite of a surplus.

Economic shortages are related to price—when the price of an item is set below

the equilibrium rate determined by supply and demand, there will be a shortage. In most cases,

a shortage will compel firms to increase the price of a product until it reaches market

equilibrium. Sometimes, however, external forces cause more permanent shortages—in other

words, there is something preventing prices from rising or otherwise keeping supply and

demand balanced.

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. In the economic use of "shortage", however, the

affordability of a good for the majority of people is not an issue: If people wish to have a certain

good but cannot afford to pay the market price, their wish is not counted as part of the quantity

demanded at that price.

Contents

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1 Effects 2 Examples 3 Shortages and "longages" 4 See also 5 References

Effects[edit]

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.

More generally, regardless of their cause, shortages may result in:

Black markets  - illegal markets in which products that are unavailable in conventional

markets are sold, or in which products with excess demand are sold at higher prices than in

the conventional market.

Artificial controls on demand, such as rationing.

Non-monetary bargaining methods, such as time (for example queuing), nepotism, or even

violence.

Price discrimination

The inability to purchase a product.

Examples[edit]

In the former Soviet Union during the 1980s, prices were artificially low by fiat (i.e., high

prices were outlawed). Soviet citizens waited in line (or "queued") for various price-

controlled goods and services such as cars, apartments, or some types of clothing. From

the point of view of those waiting in line, such goods were in perpetual "short supply"; some

of them were willing and able to pay more than the official price ceiling, but were legally

prohibited from doing so. This method for determining the allocation of goods in short

supply is known as "rationing".

Other examples of economic shortages include:

1973 oil crisis , during which long lines and rationing were used to control demand.

Prohibition , which resulted in the creation of a black market for liquor.

Whether an economic shortage of a certain good or service is beneficial or detrimental to

society often depends on one's ethical and political views. For instance, consider the shortage

of recreational drugs discussed above, and the controversies around the use of such drugs.

Likewise, consider the economic shortage of cars in the Soviet Union during the 1980s: On the

one hand, people had to wait in line to buy a new car; on the other hand, cars were more

affordable than they would have been at market prices.

Shortages and "longages"[edit]