In aperfect market (one that matches a simplemicroeconomic model), an excess of demand will prompt sellers to increaseprices until demand at that price matches the available supply, establishingmarket equilibrium.[1][2] 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.[3] "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 ofsupply and demand does not attempt to encompass).
Branding efforts, i.e. a supplier selling a product below the market-clearing price, in order to cause a visible shortage so as to plant an impression of desirability in the minds of consumers. This is typically employed in the marketing of high status goods and services.
Decisions by suppliers not to raise prices in order to maintain friendly relationships with potential future customers during a supply disruption.
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 ofgovernment 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.[3] Economic shortages caused by highertransaction costs andopportunity 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.
Black (illegal) andGrey (unregulated) 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 of demand, such as time (such as waiting in line atqueues) andrationing.
Non-monetary bargaining methods, such as time (for examplequeuing),nepotism, or even violence.
During the1973 oil crisis, rationing and price controls were instituted in many countries, which caused shortages.
In the formerSoviet Union during the 1980s, prices were artificially low by fiat (i.e., high prices were outlawed).[10][11] Soviet citizens waited in line for variousprice-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".
From the mid-2000s through the 2010s,shortages in Venezuela occurred, due to the Venezuelan government's economic policies;[12] such as relying on foreign imports while creating strictforeign exchange controls, put price controls in place and havingexpropriations result with lower domestic production. As a result of such shortages, Venezuelans had to search for products, wait in lines for hours and rationing was initiated, with the government allowing the purchase of a certain amount of products when it's available, throughfingerprint recognition.[13][14][15]
Shortages inSudan sparked a revolution in 2019 which ended PresidentOmar al-Bashir's 30-year rule. They continued into 2020.[16]
Labour shortages can occur even during economic periods of high unemployment oryouth unemployment within specific industries due to low salaries offered.[20] In response to domestic labour shortages, some business associations such aschambers of commerce,trade associations oremployers' organizationslobby for an increasedimmigration offoreign workers which accept lower salaries according to theglobal labor arbitrage.[21] In addition, business associations have campaigned for greater state provision ofchild care, which would enable more women to re-enter the labour workforce at a lower wage rate to achieveeconomic equilibrium.[22] However, lower salaries discourage local labour from entering the relevant industries and can cause labour shortages in developing countries.[23]
TheAtlantic 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 theAmericas (particularly in theSouthern United States). It was thought that bringing African labor was the only means ofmalaria resistance available at the time.[24]
^abcPettinger, Tejvan (3 April 2020)."Shortages".Economics Help. Retrieved2022-10-06.
^"Depression and the Struggle for Survival".Library of Congress. Retrieved30 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.
Gomulka, Stanislaw: "Kornai's Soft Budget Constraint and the Shortage Phenomenon: A Criticism and Restatement", in:Economics of Planning, Vol. 19. 1985. No. 1.
Kornai, János,Socialist Economy, Princeton University Press, 1992,ISBN0-691-00393-9.
Kornai, János,Economics of Shortage, Amsterdam: North Holland Press. Volume A, p. 27; Volume B, p. 196.
Maskin, Eric, ed. (2000).Planning Shortage and Transformation: Essays in Honor of Janos Kornai, Cambridge, Massachusetts: MIT Press.ISBN9780262527293
Myant, Martin; Drahokoupil, Jan (2010).Transition Economies: Political Economy in Russia, Eastern Europe, and Central Asia. Wiley-Blackwell.ISBN978-0-470-59619-7.
Part 1 andPart 2 of COMPARING AND ASSESSING ECONOMIC SYSTEMS, Shortage and Inflation: The Phenomenon, PPT (PowerPoint file presentation) at West Virginia University
