Shortage

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DEFINITION of 'Shortage'

A situation where demand for a product or service exceeds the available supply. Possible causes of a shortage include miscalculation of demand by a company producing a good or service (i.e., the company can't produce enough to keep up with demand) or government policies (i.e., price fixing/rationing). Natural disasters that devastate the physical landscape of a region can also cause shortages of such essential products as food and housing, also leading to higher prices of those goods.

BREAKING DOWN 'Shortage'

A government-imposed price ceiling can create a shortage. When the government does not allow the free market to dictate the price of an item based on its supply/demand, an artificially high number of people may decide to purchase that item because the price is artificially low. For example, if the government provides free doctor visits as part of a national health care plan, consumers may experience a shortage of doctor services because when people no longer have to pay directly for them, they will be likely to increase their demand for those services.



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