What is the Difference between Shortage and Scarcity?

Shortages and scarcity are very common market situations that arise from a variety of reasons. Understanding the difference between these two concepts is important because it can help you analyze the economics and manage your resources better.

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What is the difference between shortage and scarcity? Most people use the terms interchangeably, but there is a big difference. A shortage is when there is not enough of something to meet demand. Scarcity, on the other hand, is when something is in short supply, and not everyone can have it. Let’s discuss the difference between shortage and scarcity, shortages in economics, and many more related topics in this article.

1. What is a Scarcity Problem?

A scarcity problem is a situation where the demand for a resource exceeds the available supply. As a result, the price of the resource rises, and people who want to use the resource have to compete for access to it.

Scarcity problems can arise for a variety of reasons. For example, a resource may be in short supply because it is not easy to find or extract or because there are too few available resources to meet the demand. In addition, some resources (such as freshwater) are becoming increasingly scarce as global populations grow and demand increases. (See How do You decide What to Produce?)

2. What are the Types of Scarcity?

A scarcity problem exists when a good or service is desired by more people than there are available resources to satisfy their wants. When this occurs, the price of the good or service will rise as people compete for the available resources.

There are two types of scarcity:

  • Relative scarcity exists when there is not enough of a particular resource to meet everyone’s needs. For example, water is a scarce resource in some parts of the world because it is not available in sufficient quantities.
  • Absolute scarcity exists when there are not enough resources to meet everyone’s needs. For example, the air is an abundant resource, but there are only a few places one can live on Earth where air quality is tolerable.

3. What Causes Scarcity?

There are many causes of scarcity. Here are five: 

  • Poor economic management: When a country does not manage its economy well, it can lead to shortages of goods and services. This is often because the government does not produce enough goods or invest in the right sectors, which can lead to a shortage of certain items in the market.
  • Limited resources: Some things, like oil or water, are limited in supply and thus can cause scarcity. As the world’s population grows and more people demand these resources, the cost of these items increases and can lead to shortages.
  • Environmental damage: When a natural resource is damaged or destroyed – like an oil spill – it can make that resource unavailable and cause scarcity. This can also lead to an increase in the prices of other goods that use the same resource.
  • War or conflict: When countries go to war, it often disrupts trade and can lead to shortages of goods. This is because resources are diverted to the war effort and away from civilian needs, leading to decreased available supply.
  • Poor infrastructure: A country’s infrastructure – its roads, bridges, and communication systems – can be insufficient to meet the needs of its people. This can cause a shortage of goods and an increase in prices.

4. What are Shortages in Economics?

A shortage in economics is a situation in which the quantity of a good or service demanded exceeds the quantity supplied. This can be caused by various factors, such as a lack of production capacity or low production levels.

Shortages can lead to higher prices and longer wait times for consumers. They can also cause businesses to reduce their output, laying off workers and reducing profits. Some shortages may be resolved through government intervention, such as price controls or subsidies. (Also read How to Allocate Resources Efficiently?)

5. Does a Shortage Increase Price?

If the market is competitive, a shortage will increase prices as suppliers try to earn a higher profit. This occurs in basic goods such as food and water. However, suppose the market is monopolistic or oligopolistic, in that case, a shortage may not cause an increase in price because there is no competition, and the supplier can set any price they want. This occurs in goods such as gasoline and electricity. 

6. How does a Shortage Affect Supply and Demand?

JAN23 What is the Difference between Shortage and Scarcity 1
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When it comes to shortages, there are a few things to consider. The first is that, naturally, the price will go up when there’s less of something available. This happens because the people who still have access to the product can demand more money since it’s in high demand. So, in terms of supply and demand, when there’s a shortage the demand usually goes up while the supply goes down.

This can create problems because high prices sometimes mean people can’t afford the product anymore. For example, if the price of bread goes up too much, people may not be able to afford to buy it anymore. This would mean that they wouldn’t be able to get enough food. Check out How can You Compare Producer Vs Consumer?

7. What is an Example of Scarcity and Shortage?

An example of scarcity and shortage is coal. Coal is difficult to find and extract, so it’s in short supply. This has caused coal prices to skyrocket, which has led to blackouts and higher electricity costs.

8. What is the Difference Between Shortage and Scarcity?

The key difference between shortage and scarcity is that a shortage can be fixed through production, while scarcity cannot.

A shortage is a situation in which there is not enough of something to meet the demand. This can be fixed by increasing production until the shortfall is eliminated.

Scarcity, however, is a situation in which there is not enough of something to go around. This means that even if everyone wanted to have some of the scarce resources, there would not be enough to go around. This cannot be fixed through increased production because it’s a question of availability (there isn’t enough). (Also read What is Consumer Science Definition?)

9. How are Scarcity and Shortage Similar?

While discussing the difference between shortage and scarcity, additionally note that they have some similarities as well because they are both terms for lack of something. Scarcity is a lack of something that is in demand. The shortage is a lack of something that is needed. 

10. What is the Difference between Shortage and Surplus?

Besides wondering about the difference between shortage and scarcity, let’s distinguish between shortage and surplus as well. The main difference between a shortage and a surplus is that a shortage is when there isn’t enough of something, while a surplus is when there is more than enough of something.

A shortage typically means that something is in high demand and low supply, while a surplus typically means that something is in low demand and high supply. For example, if there were a shortage of bananas, it would mean that more people want them than there are bananas available. On the other hand, if there were a surplus of bananas, it would mean that there would be more bananas than people who want them. 

Hope you understand the concept and difference between shortage and scarcity and how to tackle the shortages in economics with an example of scarcity and shortage. (Also read What do Households do in the Factor Market?)

About the author
Alex Williams is a PhD student in urban studies and planning. He is broadly interested in the historical geographies of capital, the geopolitical economy of urbanization, environmental and imperial history, critical urban theory, and spatial dialectics.

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