You've probably heard about the housing shortage or the scarcity of gold. You presumably caught the essence of exactly what they mean by scarcity and shortage, but do you know the specifics? Scarcity describes the truth that resources are not infinite. Hence it is impossible for everyone who wants a certain resource to get everything they want. Shortage defines the situation in which the availability of a service or good falls short of demand.
Understanding these phrases is essential regardless of your work or interests. Continue reading to obtain a firm handle on these fundamental economic ideas and how to tell one from the other.
Scarcity vs Shortage
Scarcity refers to limitedness, which is used in the context of natural resources that can be reproduced but are nevertheless scarce since their availability is limited at any time. Scarcity, on the other hand, is a market phenomenon that refers to products and services that are not available in sufficient quantities.
The key distinction between scarcity and shortage is that scarcity is a natural constraint of something, whereas shortage is a condition in which the object required cannot be obtained at that time.
Difference Between Scarcity and Shortage in Tabular Form
|BASIS OF COMPARISON||SCARCITY||SHORTAGE|
|Meaning||Scarcity is a state in which a resource is available in a limited quantity at a specific point in time.||A shortage occurs when the offers for a product are less than the bids.|
|Occurrences||When something is scarce, it is unusual and difficult to reproduce.||Shortage occurs when a product is popular and easy to obtain, yet supply does not always meet demand.|
|Nature||Long-term state caused by restricted resources in comparison to boundless wants and needs.||A shortage occurs when a product is popular and easy to obtain, yet supply does not always meet demand.|
|Impact||Influences economic decisions and resource allocation.||It causes market imbalances and has an impact on specific transactions.|
|Resolution||Temporary and resolvable over time.||Price, offer, or demand adjustments may be used to remedy the issue.|
|Duration||Consistent and continuing.||A temporary condition is caused by an imbalance in supply and demand for a given item or service.|
|Used for||Natural resource||Product services|
|Example||Natural resources, time, and human capacities are all limited.||Shortage of a specific product because of strong demand or supply problems.|
What Is Scarcity?
Scarcity is an economic concept based on one of life's most basic facts: we live in a world with finite resources that necessitate decisions about how they are allocated. In that sense, even a pack of gum or a book of matches is scarce since someone used resources that could have been used elsewhere to manufacture it.
Because scarcity is so crucial to economics, scarce products are also referred to as economic goods. In economics, scarce products are those for which demand exceeds supply at zero cost.
Some natural resources that appear to be free because they are freely and publicly available later become limited due to abuse in a tragedy of the commons. Economists increasingly regard clean air and a climate compatible with human welfare as scarce goods due to the high expense of conserving them, and they may be priced for cost-benefit analysis purposes.
Basics of Scarcity
If every resource on the planet was abundant, there would be no need for economists. Decisions about resource allocation would be unnecessary, and tradeoffs would be unnecessary. Unfortunately, the real world does not operate in this manner. Each commodity has a price; effectively, every resource on the planet has a degree of scarcity.
Time and money, for example, are both precious resources. In the actual world, it is frequent to come across someone who has a scarcity of one or both resources. Even if a person does not have a job, he will be unable to meet his fundamental personal demands. A famous company executive might have a lot of money and the ability to retire at any moment, but he can only afford a ten-minute lunch or five hours of sleep each night. There are very few people in the world who have an excess of both money and time.
Causes of Scarcity
"Why are economic resources scarce in the first place?" you may think. Some may argue that resources such as time or natural resources are scarce. It is also necessary to consider scarcity in terms of what it means to select a resource for one function over another. This is known as the opportunity cost idea. As a result, it is not only the scarcity of resources that we must consider, but also the opportunity cost implied in how we choose to use them.
Aside from the overall cause of scarcity, which is the nature of resources, there are four major causes of scarcity: unequal distribution of resources, rapid decrease in supply, rapid growth in demand, and scarcity perception.
Unequal Distribution of Resources
An unequal distribution of resources is one of the reasons for the shortage. Frequently, resources are offered to one segment of the population but not to another. What would you do if lived in a place where lemons were merely unavailable? In situations like this, the issue is that there's no efficient strategy to get resources to a specific group of people. This could be due to a conflict, governmental policies, or just a lack of infrastructure.
Rapid Decrease in Supply
Another kind of scarcity is when demand grows faster than supply can keep up. For example, if you reside somewhere with mild summer temperatures, you can expect a significant increase in demand for air conditioning equipment if an abnormally hot summer happens. While this form of scarcity does not usually persist long, it does show how a sudden increase in demand can result in relative scarcity.
Rapid Growth in Demand
A sudden fall in supplies can also produce scarcity. Natural calamities, such as droughts and fires, or political factors, such as a government imposing sanctions on another country's products, can cause rapid supply shortages. In such circumstances, the condition may be just transitory, yet it still creates a scarcity of resources.
In some circumstances, scarcity may simply be the result of personal opinions. In other words, there may be an abundance of goods and services. Rather, the issue may be that someone believes there is scarcity and attempts to save more, or that no one bothers to hunt for the resource at all. In other circumstances, businesses would purposefully create a sense of scarcity to persuade customers to buy their items. In truth, this is a typical ruse in high-end goods and technology.
Pros of Scarcity
- Scarcity is what keeps you focused since it can direct your attention to obtaining something you require.
- Scarcity-induced unemployment can motivate some people to approach their lives more seriously and practically.
Cons of Scarcity
- Even the mere concept of scarce resources such as food or water can have an impact on one's mental health.
- The scarcity of key resources can not only impair performance and energy to work, but it can also be lethal in some situations.
What Is Shortage?
The term shortage refers to a scenario in which the market supply of a specific product or service is insufficient to match the quantity sought at a given point in time. Simply put, when the demand for an item or service exceeds the supply, economists refer to this as a shortage.
The vendor can correct the shortage by raising the price of the product until the demand equals the available supply. Furthermore, items can be imported from other nations in order to avoid scarcity in the economy.
How Does a Shortage Work?
At a price point determined by market forces, there is a balance between the amount requested and the quantity provided in a normally functioning market. A shortage occurs when demand for a product or service exceeds the available supply. When this happens, the market is in disequilibrium. This is usually a brief occurrence since the product is restocked and the market returns to equilibrium.
It is important to note that shortage should not be mistaken with the economic term "scarcity," because shortages are typically transient and may be addressed, whereas scarcities are systemic and cannot be easily refilled.
Causes for Shortage
There are three major sources of scarcity:
Increase in demand (outward shift in the demand curve): A sudden heatwave, for example, causes an unexpected demand for energy that cannot be fulfilled.
Decrease in supply (inward shift in supply curve): For example, an unexpected freeze destroys orange crops, resulting in a severe reduction in orange juice supply.
Intervention by the government: Price ceilings imposed by the government can sometimes cause shortages.
Possible causes of a shortage include a company's underestimation of demand, resulting in an inability to meet demand, or government actions such as price-fixing or rationing. Natural catastrophes that ruin a region's physical landscape can also produce shortages of vital products like food and housing, resulting in higher pricing for such things. Commodity and labor shortages can be caused by global consumer and corporate trends.
Consequences and Impact of Shortage
The medical supply deficit has had far-reaching effects for healthcare systems and patient care. Healthcare professionals must make challenging resource allocation decisions, frequently prioritizing critical cases while compromising on non-urgent operations. PPE shortages have put frontline healthcare workers in danger, perhaps contributing to higher infection rates among medical personnel. Furthermore, a lack of vital equipment, such as ventilators, has put pressure on intensive care units and jeopardized their ability to perform life-saving interventions.
Special Consideration of Shortage
In command economies, shortages are more common. The government will not let the free market determine the price of a product or service based on supply and demand dynamics. When this occurs, an unnaturally large number of people might choose to purchase the product due to the low price.
For example, if the government offers free medical visits as a feature of a national healthcare plan, consumers might encounter a physician shortage. This is because people are more inclined to visit a doctor when the cost is no longer borne directly by them.
Pros of Shortage
- During a shortage, demand for commodities increases, allowing vendors to charge higher prices for the goods.
- Furthermore, higher prices encourage merchants to supply more things.
Cons of Shortage
- Shortages can cause costs to rise, putting things out of reach for the general public.
- A lack of essential services can even result in the loss of life, property, and current riches.
Main Differences Between Scarcity and Shortage in Points
The distinctions between scarcity and shortage are obvious on the following grounds:
- Scarcity is a state in which a resource is available in a limited quantity at a specific point in time. A shortage occurs when the supply of a thing is less than the demand for it.
- When something is scarce, it is unusual and difficult to reproduce. On the contrary, scarcity occurs when an item is popular and easy to obtain, yet supply does not always meet demand.
- Scarcity is permanent, whereas shortfall is temporary, i.e., the shortage problem can be rectified.
- Scarcity is a natural occurrence in contrast to the scarcity caused by market forces of demand and supply.
- The term scarcity refers to natural resources that decline with time, such as time, oil, and land. That does not happen with man-made goods or services.
Scarcity and shortage are frequently used interchangeably because they are both related to the same sector and have something to do with it. But when we talk about scarcity vs shortage, they are different in many respects. Scarcity refers to all natural resources that are restricted, whereas shortage is caused by man, when there is a shortfall of commodities or services in the market due to rising demand. There are several contrasts between scarcity and shortage, such as scarcity cannot be regulated, whereas shortage can be readily handled. Furthermore, the effects of both phrases are distinct. The scarcity may be rectified, but if it persists, it can possibly result in death.