Scarcity vs Shortage in Economics Differences & Examples Video & Lesson Transcript

A country’s per capita income (which is almost synonymous with per capita output) is the best available measure of the value of the goods and services available, per person, to the society per year. As a result of scarce resources, individuals and businesses have to make tough decisions between two or more options. Resources are limited, so choices have to be made which maximise utility or in the case of businesses, profits.

Prices and perceived value rise when resources are scarce and fall when they are abundant. For example, governments control the printing of money, a valuable good. But, paper, cotton, and labor are all widely available across the world, so the things required to make money are not themselves scarce. If governments print too much money, the value of their money decreases, because it has become less scarce. When the supply of money in an economy is too high, it can lead to inflation. Inflation means the amount of money needed to buy a good or service increases—therefore money becomes less valuable, and the same amount of money can buy less over time than it could in the past.

Malthus and absolute scarcity

In Panel (c), since both curves shift to the left by the same amount, equilibrium price does not change; it remains $6 per pound. We have unlimited wants and limited resources.This forces us to make decisions about how to best use our limited resources. Individuals, businesses, governments, and countries all face scarcity.

In all cases, scarcity requires careful attention to data and trends so that business leaders can manage the implications of scarcity on revenue, costs, operations and profits. Scarcity refers to the existence of limited resources that are not enough to address unlimited human needs or demands. On the other hand, shortage refers to an occurrence whereby the order in the market outdoes the supply available at a given time.

Examples of Shortages

As resources are scarce, we have to choose between options, which presents an opportunity cost. We cannot have both the latest PlayStation and Xbox when we only have $500 to spend. Decisions must be made when resources are scarce — based on the marginal utility of value. There are many ways to spend $50, but it can only be spent on one thing. A consumer with $50 in their pocket, they cannot buy both a pair of trainers AND a nice jumper.

• If the shift to the left of the supply curve is greater than that of the demand curve, the equilibrium price will be higher than it was before, as shown in Panel (b).
• They face multiple brand choices – however, they only have enough money for one.
• Your mastery of this model will pay big dividends in your study of economics.
• In contrast, a shortage is a market situation usually focusing on a particular item relative to its price.
• A famous example is the 2011 earthquakes and tsunami that dramatically reduced Japan’s semiconductor manufacturing capacity.

Relative scarcity is where a good is naturally limited in supply. However, we define relative scarcity as being naturally limited, but is also scarce relative to demand. Water scarcity is a relative concept and can occur at any level of supply or demand. Scarcity may be a social construct (a product of affluence, expectations and customary behaviour) or the consequence of altered supply patterns – stemming from climate change for example. Water scarcity is among the main problems to be faced by many societies and the World in the XXIst century. Water use has been growing at more than twice the rate of population increase in the last century, and, although there is no global water scarcity as such, an increasing number of regions are chronically short of water.

Concept 14: Production Possibilities Curves

You may find it helpful to use a number for the equilibrium price instead of the letter “P.” Pick a price that seems plausible, say, 79¢ per pound. Do not worry about the precise positions of the demand and supply curves; you cannot be expected to know what they are. Figure 3.16 “A Shortage in the Market for Coffee” Shortage & Scarcity in Economics: Definition, Causes & Examples shows a shortage in the market for coffee. At that price, 15 million pounds of coffee would be supplied per month, and 35 million pounds would be demanded per month. When more coffee is demanded than supplied, there is a shortage. When demand is constant, but supply declines, we have a supply-driven scarcity.

Severe weather, for example, may cause a temporary shortage of bottled water at the grocery store. Once the manufacturers of bottled water produce more and the bad weather passes, however, the shortage is likely to end. Bottled water would still be scarce, though since water, plastic and other resources used to manufacture bottled water are all limited, desired and have multiple uses. Conley said some countries, such as Thailand, have both abundant natural resources and efficient human institutions to manage these resources. Thailand produces more than enough rice to feed its own population, so it exports the surplus. “Thailand is a developing country, but it has the natural resource endowments and the human institutions in place to take care of their population.”

Access Check

To reverse the cocoa shortage, leading chocolate producers, such as Nestle S.A., are partnering to educate West African cocoa farmers on best practices and techniques to boost their production. Temperatures soar into the triple digits, and we all have the same reaction – turn on the air conditioner! The unpredicted increase in demand for energy causes a shortage, also referred to as brownouts or blackouts. Normally shortage occurs when more people are willing to purchase a particular good or service at a certain market price than what is available. The following are some of the artificial conditions that can create a shortage. If the curves shifted by the same amount, then the equilibrium quantity of DVD rentals would not change [Panel (c)].

Changes in demand can be caused by any combination of expansion of the customer base, growth in customer income or changes in customer preferences. For example, the current growing demand for electric vehicles is expected by some to create demand-induced scarcity for some electric vehicle battery components. Scarcity is used to refers all resources which are limited in nature. When there is a scarcity of something, it means that you don’t have raw materials to produce other useful goods. So, scarcity is a broader term than the shortage, as the latter can be resolved but the former cannot be resolved.