Economic shortage is a term describing a disparity between the amount demanded for a product or service and the amount supplied in a market. In Marketing, a product is anything that can be offered to a Market that might satisfy a want or need A service is the non-material equivalent of a good. A service provision is an economic activity that does not result in Ownership, and this is what differentiates Sao Paulo Stock Exchangejpg|thumb| Virtual market arena where buyer and seller are not present and trade via intemediates and electronical information Specifically, a shortage occurs when there is excess demand; therefore, it is the opposite of a surplus. The term surplus is used in Economics for several related quantities
Economic shortages are related to price—when the price of an item is "too low," there will be a shortage. Price in Economics and Business is the result of an exchange and from that trade we assign a numerical Monetary value to a good, In most cases, a shortage will compel firms to increase the price of a product until it reaches market equilibrium. A business (also called firm or an enterprise) is a legally recognized organizational entity designed to provide goods and/or services to In Economics, economic equilibrium is simply a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium values of economic Sometimes, however, external forces cause more permanent shortages—in other words, there is something preventing prices from rising or otherwise keeping supply and demand unbalanced.
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 demand.
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Effects
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 portion of the population to purchase a product that they couldn't afford at market costs. Economic shortages are generally seen as undesirable since they lead to economic inefficiency. In absence of a price mechanism, resources are less likely to be distributed according to people's utility. In Economics, utility is a measure of the relative satisfaction from or desirability of Consumption of various Goods and services. Higher transaction costs and opportunity costs (e. In Economics and related disciplines a transaction cost is a Cost incurred in making an economic exchange Opportunity cost or economic opportunity loss is the value of a product forgone to produce or obtain 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. Rationing is the controlled distribution of resources and scarce goods or services
- Non-monetary bargaining methods, such as time (for example waiting in line), nepotism, or even violence. Queue areas are places in which people in line ( First-come first-served) wait for goods or services Nepotism is the showing of favoritism toward relatives and friends based upon that relationship rather than on an objective evaluation of ability Meritocracy or suitability
- Price discrimination
- The inability to purchase a product. Price discrimination exists when sales of identical goods or services are transacted at different Prices from the same provider
Examples
- In the former Soviet Union during the 1980s, prices were artificially low by fiat (i. The Union of Soviet Socialist Republics (USSR was a constitutionally Socialist state that existed in Eurasia from 1922 to 1991 The 1980s was the decade spanning from January 1 1980 to December 31 1989. 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". Rationing is the controlled distribution of resources and scarce goods or services
- In the United States one of the most extreme examples of economic shortages are those caused by price ceilings on recreational drugs such as cocaine, heroin, and marijuana. The United States of America —commonly referred to as the Recreational drug use is the use of Psychoactive drugs for Recreational purposes rather than for work, medical or spiritual purposes Cocaine ( benzoylmethyl ecgonine) is a Crystalline Tropane Alkaloid that is obtained from the leaves of the Coca plant Heroin ( INN: diacetylmorphine, BAN: diamorphine) is a semi-synthetic opioid synthesized from Morphine, a derivative Cannabis, also known as marijuana or marihuana, or ganja (from Hindi / Sanskrit: गांजा gānjā hemp) is a Government enforced prohibition effectively establishes a price ceiling of negative infinity; it is illegal to buy or sell these goods at any price. At the legally enforced price of negative infinity, consumers face a shortage of legal cocaine. They opt for legal cocaine's best substitute, illegal cocaine, and resort to illegal transactions at prices higher than the ceiling. The shortage in this case prevails only within the legal market; the black market in fact clears at black market prices.
Other examples of economic shortages include:
- 1973 oil crisis, during which long lines and rationing were used to control demand. The 1973 oil crisis began on October 17 1973 when the members of Organization of Arab Petroleum Exporting Countries (OAPEC consisting of the Arab members of
- Prohibition, which resulted in the creation of a black market for liquor. Prohibition of alcohol, often referred to simply as prohibition, also known as Noble Experiment, refers to a Sumptuary law which prohibits Alcohol
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. Ethics is a major branch of Philosophy, encompassing right conduct and good life Politics Politics is the process by which groups of people make decisions 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"
Garrett Hardin emphasized that a shortage of supply can just as well be viewed as a "longage" of demand. Garrett James Hardin ( April 21, 1915 &ndash September 14, 2003) was a leading and controversial Ecologist from Dallas Supply and demand is an Economic model describing effects on price and quantity in a Market. For instance, a shortage of food can just as well be called a longage of people (overpopulation). Overpopulation refers to a condition where an Organism 's numbers exceed the Carrying capacity of its Habitat. By looking at it from this view, he felt the problem could be better dealt with. [1]
See also
- Shortage economy
- Scarcity
- Wood gas generator
- Price Controls Cause Shortages [1]
- False shortage
References
- ^ Video Interview with Garrett Hardin: Longages and Overpopulation Predictions Educational Communications program 803, 1990
- Alchian, Armen A. Shortage economy (Polish gospodarka niedoboru, Hungarian hiánygazdaság) is a term coined by the Hungarian Economist, János Kornai Scarcity (also called paucity) is the problem of Infinite human needs and Wants, in a world of Finite Resources In other A wood gas generator often known as a gasifier is a wood-fueled Gasification reactor mounted on an Internal combustion engine, to provide a Wood gas A false shortage is a form of artificial Scarcity induced by a supplier, often with the intent to elevate Consumer Demand above levels ; Allen, William R. . Exchange and Production: Competition, Coordination, and Control. ISBN 0-534-01320-1.
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