Shortage

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).

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.Tucker (2014) Economics Today{{Cite journal |date=2016-06-17 |title=3.3 Demand, Supply, and Equilibrium |url=https://open.lib.umn.edu/principleseconomics/chapter/3-3-demand-supply-and-equilibrium/ |journal=Principles of Economics |language=en-us |publisher=University of Minnesota}} 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.{{Cite web |last=Pettinger |first=Tejvan |title=Shortages |url=https://www.economicshelp.org/blog/146202/economics/shortages/ |access-date=2022-10-06 |website=Economics Help |date=3 April 2020 |language=en-GB}} "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 by the following causes:

Price ceilings, a type of price control which involves a government-imposed limit on the price of a product or service.
Anti-price gouging laws.
Government ban on the sale of a product or service, such as prostitution or certain recreational drugs.
Decisions by suppliers not to raise prices, for example to maintain friendly relationships with potential future customers during a supply disruption.
Artificial scarcity.

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 or will cause:

Black (illegal) and Grey (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 at queues) and rationing.
Non-monetary bargaining methods, such as time (for example queuing), nepotism, or even violence.
Panic buying
Price discrimination.
The inability to purchase a product, and subsequent forced saving.
Increase in demand for substitute goods.
Deadweight loss due to artificial scarcity; a net loss of economic welfare to society occurs when an artificial limit of supply (by monopolies or oligopolies to maximise profits), limits the number of people who can enjoy the good.

Examples

File:Dried pasta shelves empty in an Australian supermarket.jpg

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

Food shortages have occurred in the United States during the Great Depression.{{cite web|url=https://www.loc.gov/teachers/classroommaterials/presentationsandactivities/presentations/immigration/alt/mexican6.html|title=Depression and the Struggle for Survival|access-date=30 March 2020|website=Library of Congress|quote=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.}}
Rationing in the United Kingdom and the United States occurred mainly during and after the world wars{{Cite web |title=What You Need To Know About Rationing In The Second World War |url=https://www.iwm.org.uk/history/what-you-need-to-know-about-rationing-in-the-second-world-war |access-date=2022-10-06 |website=Imperial War Museums |language=en}}{{Cite web |title=Sacrificing for the Common Good: Rationing in WWII (U.S. National Park Service) |url=https://www.nps.gov/articles/rationing-in-wwii.htm |access-date=2022-10-06 |website=www.nps.gov |language=en}}
Potato shortages in the Netherlands triggered the 1917 Potato riots.{{cite web |title=Potato eaters shot |url=https://socialhistory.org/en/today/potato-eaters-shot |website=International Institute of Social History |date=7 July 1917}}{{cite news |url=http://nla.gov.au/nla.news-article90284213 |title=Potato riots in Amsterdam. |newspaper=Bendigo Advertiser |date=6 July 1917 |page=7 |via=National Library of Australia}}
From 1920 to 1933 during prohibition in the United States, a black market for liquor was created due to the low supply of alcoholic beverages.{{Cite web |last=Macias |first=Amanda |title=Prohibition began 100 years ago – here's a look at its economic impact |url=https://www.cnbc.com/2020/01/17/prohibition-began-100-years-ago-had-impact-on-us-economy.html |access-date=2022-10-06 |website=CNBC |date=17 January 2020 |language=en}}
During the 1973 oil crisis, rationing and price controls were instituted in many countries, which caused shortages.
In the former Soviet Union during the 1980s, prices were artificially low by fiat (i.e., high prices were outlawed).{{Cite web |title=Why Price Controls Should Stay in the History Books |url=https://www.stlouisfed.org/publications/regional-economist/2022/mar/why-price-controls-should-stay-history-books |access-date=2022-10-06 |website=www.stlouisfed.org |language=en}}{{Cite news |last=Shapiro |first=Margaret |date=1992-01-02 |title=RUSSIA ENDS PRICE CONTROLS TODAY |language=en-US |newspaper=Washington Post |url=https://www.washingtonpost.com/archive/politics/1992/01/02/russia-ends-price-controls-today/8d88126d-fcf9-43c0-99c0-98517b345c6e/ |access-date=2022-10-06 |issn=0190-8286}} Soviet citizens waited in line 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".
From the mid-2000s through the 2010s, shortages in Venezuela occurred, due to the Venezuelan government's economic policies;{{Cite news|title = Venezuela seizes warehouses packed with medical goods, food|url = https://www.reuters.com/article/us-venezuela-economy-idUSKCN0ID00A20141024|newspaper = Reuters|date = 2014-10-24|access-date = 2015-12-07}} such as relying on foreign imports while creating strict foreign exchange controls, put price controls in place and having expropriations 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, through fingerprint recognition.{{cite news|title=Why are Venezuelans posting pictures of empty shelves?|url=https://www.bbc.com/news/blogs-trending-30710014|access-date=10 January 2015|agency=BBC|date=8 January 2015}}{{cite news|last1=Cawthorne|first1=Andrew|title=In shortages-hit Venezuela, lining up becomes a profession|url=https://www.reuters.com/article/us-venezuela-shortages-idUSKBN0KU1BX20150121|access-date=17 June 2015|work=Reuters|date=21 January 2015}}{{cite news|last1=Schaefer Muñoz|first1=Sara|title=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'|url=https://online.wsj.com/articles/despite-riches-venezuela-starts-food-rationing-1414025667|access-date=11 November 2014|agency=The Wall Street Journal|publisher=Dow Jones & Company Inc|date=22 October 2014}}
Shortages in Sudan sparked a revolution in 2019 which ended President Omar al-Bashir's 30-year rule. They continued into 2020.{{cite web|url=https://www.aljazeera.com/news/2020/03/sudan-frustration-grows-fuel-bread-shortages-200311145349235.html|title=Sudan: Frustration grows over fuel, bread shortages|website=Al Jazeera|date=11 March 2020}}
Panic buying due to the COVID-19 pandemic caused food and product shortages around the world.{{cite web |url= https://www.usatoday.com/story/money/2020/02/28/coronavirus-2020-preparation-more-supply-shortages-expected/4903322002/ |title=Coronavirus fears empty store shelves of toilet paper, bottled water, masks as shoppers stock up |last=Tkyo |first=Kelly |date=29 February 2020 |work=USA Today }}

Labour shortage

{{Further|Labour economics|Frisch elasticity of labor supply|Exploitation of labour|Wage slavery}}

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 specific wage. Such a condition is sometimes referred to by economists as "an insufficiency in the labour force."

In a wider definition, a widespread domestic labour shortage is caused by excessively low salaries (relative to the domestic cost of living) and adverse working conditions (excessive workload and working hours) in low-wage industries (hospitality and leisure, education, health care, rail transportation, aviation, retail, manufacturing, food, elderly care), which collectively lead to occupational burnout and attrition of existing workers, insufficient incentives to attract the inflow supply of domestic workers, short-staffing at workplaces and further exacerbation (positive feedback) of staff shortages.{{Cite news |last=Bhattarai |first=Abha |date=2022-09-16 |title=Worker shortages are fueling America's biggest labor crises |url=https://www.washingtonpost.com/business/2022/09/16/worker-shortage-strikes-economy/ |access-date=2022-10-06 |newspaper=The Washington Post |language=en}}

Labour shortages occur broadly across multiple industries within a rapidly expanding economy, whilst labour shortages often occur within specific industries (which generally offer low salaries) even during economic periods of high unemployment.{{Cite web |last=West |first=Darrell M. |date=April 10, 2013 |title=The Paradox of Worker Shortages at a Time of High National Unemployment |url=https://www.brookings.edu/research/the-paradox-of-worker-shortages-at-a-time-of-high-national-unemployment/ |access-date=2022-10-06 |website=Brookings Institution |language=en-US}} In response to domestic labour shortages, business associations such as chambers of commerce would generally lobby to governments for an increase of the inward immigration of foreign workers from countries which are less developed and have lower salaries.{{Cite web |title=U.S. Chamber's Bradley: The Current Labor Shortage is 'Unprecedented,' Urges Solutions on Immigration, Childcare |url=https://www.uschamber.com/workforce/u-s-chambers-bradley-the-current-labor-shortage-is-unprecedented-urges-solutions-on-immigration-childcare |access-date=2022-10-06 |website=United States Chamber of Commerce |date=6 May 2022 |language=en}} In addition, business associations have campaigned for greater state provision of child care, which would enable more women to re-enter the labour workforce.{{Cite web |title=Data Deep Dive: A Decline of Women in the Workforce |url=https://www.uschamber.com/workforce/data-deep-dive-a-decline-of-women-in-the-workforce |access-date=2022-10-06 |website=United States Chamber of Commerce |date=27 April 2022 |language=en}} However, as labour shortages in the relevant low-wage industries are often widespread globally throughout many countries in the world, immigration would only partially address the chronic labour shortages in the relevant low-wage industries in developed countries (whilst simultaneously discouraging local labour from entering the relevant industries) and in turn cause greater labour shortages in developing countries.{{Cite web |last=Daniel |first=Dana |date=2022-07-29 |title=Train your own nurses, Australia told amid global shortage |url=https://www.smh.com.au/politics/federal/train-your-own-nurses-australia-told-amid-global-shortage-20220725-p5b4b2.html |access-date=2022-10-06 |website=The Sydney Morning Herald |language=en}}

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.[http://www.malaria.com/blog/american-plasmodium-vivax "As American as…Plasmodium vivax?"]

References

Kornai, János, Socialist economy, Princeton University Press, 1992, {{ISBN|0-691-00393-9}}
Kornai, János, Economics of Shortage, Amsterdam: North Holland Press, Volume A, p. 27; Volume B, p. 196 .
Gomulka, Stanislaw: Kornai's Soft Budget Constraint and the Shortage Phenomenon: A Criticism and Restatement, in: Economics of Planning, Vol. 19. 1985. No. 1.
Planning Shortage and Transformation. Essays in Honor of Janos Kornai, Cambridge, Massachusetts: MIT Press, 2000
{{Citation|last1=Myant|first1=Martin|last2=Drahokoupil|first2=Jan|title=Transition Economies: Political Economy in Russia, Eastern Europe, and Central Asia|publisher=Wiley-Blackwell|year=2010|isbn=978-0-470-59619-7}}

External links

János Kornai [https://web.archive.org/web/20130311145538/http://www.economics.harvard.edu/faculty/kornai Home Page at Harvard University]
János Kornai [https://web.archive.org/web/20150923205356/http://www.colbud.hu/fellows/kornai.shtml Home Page at Collegium Budapest]
[https://web.archive.org/web/20130520071525/http://www.be.wvu.edu/divecon/econ/trumbull/gradcompsys/shortage1.ppt Part 1] and [https://web.archive.org/web/20130520065445/http://www.be.wvu.edu/divecon/econ/trumbull/gradcompsys/shortage2.ppt Part 2] of COMPARING AND ASSESSING ECONOMIC SYSTEMS, Shortage and Inflation: The Phenomenon, PPT (PowerPoint file presentation) at West Virginia University
[http://faculty.vassar.edu/kennett/Kornai.htm János Kornai 'The Soft Budget Constraint']
[http://faculty.vassar.edu/kennett/Lipton.htm David Lipton and Jeffrey Sachs 'The Consequences of Central Planning in Eastern Europe']
On overview and critique of Kornai's account can be found in {{cite book

| last = Myant

| first = Martin

|author2=Jan Drahokoupil

| title = Transition Economies: Political Economy in Russia, Eastern Europe, and Central Asia

| publisher = Wiley-Blackwell

| year = 2010

| location = Hoboken, New Jersey

| pages = 19–23

| url = http://www.wiley.com/college/myant

| isbn = 978-0-470-59619-7}}

[http://www.hksystems.com/resources/educational/ES_Labor_Shortage_June.pdf Planning For The Looming Labor Shortage - A Supply Chain Perspective by HK Systems]
[http://www.memp.pratt.duke.edu/downloads/americas_new_immigrant_entrepreneurs.pdf "America's New Immigrant Entrepreneurs" ] - A Duke University Study
[http://www.gonewiththeworld.com/blog.php?sublist=(53)(50)(46)(27)(56)(58)(0) Criticism of high-tech shortage claims ]
[http://heather.cs.ucdavis.edu/itaa.real.html Disputation of High-tech Labor Shortage by Dr. Matloff]
[http://www.thepublicinterest.com/archives/2003fall/article2.html RAND Study on Alleged Shortage of Scientists]
[https://web.archive.org/web/20080406232529/http://www.internationalbusinessreport.com/Press-room/2008/Business-constraints.asp Shortage of skilled workers knocks red tape off top of business constraints league table - Grant Thornton IBR]
[http://www.miller-mccune.com/science/the-real-science-gap-16191/ The Real Science Gap - "It's not insufficient schooling or a shortage of scientists. It's a lack of job opportunities."]

Category:Market (economics)

Category:Price controls

Category:Scarcity

Category:Workforce