Shortage: Definition, What Causes It, Types, and Examples

What Is a Shortage?

A shortage, in economic terms, is a condition where the quantity demanded is greater than the quantity supplied at the market price.

A shortage can be contrasted with a surplus.

Key Takeaways

  • A shortage is a condition where the quantity demanded is greater than the quantity supplied at the market price.
  • There are three main causes of shortage—increase in demand, decrease in supply, and government intervention.
  • Shortage, as it is used in economics, should not be confused with "scarcity."

How a Shortage Works

In a normally functioning market, there is an equilibrium between the quantity demanded and quantity supplied at a price point dictated by market forces. A shortage is a situation in which demand for a product or service exceeds the available supply. When this occurs, the market is said to be in a state of disequilibrium. Usually, this condition is temporary as the product will be replenished and the market regains equilibrium.

Note that shortage should not be confused with the economics term "scarcity," in that shortages are usually temporary and can be corrected, while scarcities tend to be systemic and cannot be readily replenished.

Shortage Causes

There are three main causes of shortage:

  1. Increase in demand (outward shift in the demand curve): For example, a sudden heatwave leads to an unexpected demand for energy that cannot be met.
  2. Decrease in supply (inward shift in supply curve): For example, an unexpected freeze results in the destruction of orange crops leading to a drastic reduction in the supply of orange juice.
  3. Government intervention: Shortages can also be the result of government-imposed price ceilings.

Possible causes of a shortage include miscalculation of demand by a company producing a good or service, resulting in the inability to keep up with demand, or government policies such as price-fixing or 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. Global consumer and business trends can also create commodities and labor shortages.

Special Considerations

Shortages are more common in command economies. This is where the government will not allow the free market to dictate the price of a commodity or service based on the forces of supply/demand. When this happens, an artificially high number of people may decide to purchase that item because of the low price.

For example, if the government provides free doctor visits as part of a national healthcare plan, consumers may experience a shortage of doctor services. This is because people are more likely to visit a doctor when they no longer have to pay directly for the cost.

Examples of Shortages

Some examples of shortages in different markets include the following:

Cocoa Shortage

In 2016, chocolate makers faced a shortage of cocoa beans because of falling supplies of the raw commodity and increased demand for chocolate. In 2015, the global demand for chocolate rose by 0.6% to 7.1 million tons. However, the production of cocoa from leading cocoa bean suppliers in areas such as Ghana and the Ivory Coast fell by 3.9%, causing the global supply of cocoa beans to fall to just 4.1 million tons. A factor in the increased demand was that consumption of chocolate candy is has been on the rise in places like China and India.

Overall, the demand for cocoa in Asia jumped by 5.9% in 2015. As a result, the price of cocoa in 2015 rose to over $3,100 per metric ton, the highest level since 2012. 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.

Cybersecurity Job Shortage

Economic and technology trends can also create job market shortages when the need for workers with new skills rises. For example, the expansion of cloud computing in government and healthcare services has also created an increased risk of cybercriminal activity. Cybersecurity professionals are needed to keep business and government systems safe from ongoing hacker threats. There is, however, a shortage of workers with the skills needed to fill this career specialty.

The U.S. Bureau of Labor Statistics (BLS) reports that there were more than 200,000 unfilled cybersecurity job openings in 2020. The BLS also projects that the demand for cybersecurity professionals will rise by 33% between 2020 and 2030, which is much higher than in other industries.

What Is a Labor Shortage?

A labor shortage occurs when there are not enough qualified job candidates to fill all open positions. This can happen in new industries where few people have the requisite skills or training. It can also happen in a growing economy where certain job seekers will not settle for a less attractive job. In 2021, following the COVID19 lockdowns, the U.S. experienced a sharp labor shortage in conjunction with the "Great Resignation," when more than 47 million workers quit their jobs, many of whom were in search of an improved work-life balance and flexibility, increased compensation, and a strong company culture.

What Is an Energy Shortage?

An energy shortage occurs when there is not sufficient electrical power generation or transmission to serve a particular population. This can be caused by high energy prices, old infrastructure, and increasing demand. Hot temperatures, for example, can add stress to the electric grid as people turn on air conditioners all at once. The result can be a shortage, leading to brownouts or blackouts. Another cause can be a disruption to oil or other energy imports, due to geopolitical events, natural disaster, or similar crises.

What Is a Water Shortage?

A water shortage occurs when a region does not have enough clean and safe drinking water to satisfy its population. This can have severe health and economic impacts. As of 2022, there are 17 countries at risk of a water shortage (most in the Middle East), including Qatar, Israel, Lebanon, Iran, Jordan, Libya, Kuwait, Saudi Arabia, Eritrea, United Arab Emirates, San Marino, Bahrain, India, Pakistan, Turkmenistan, Oman, and Botswana.

Article Sources
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  1. Eater. "Big Chocolate Makers Drop $1 Billion to Head Off Worldwide Shortage."

  2. Marketplace. "Is there a global chocolate shortage coming?"

  3. U.S. Bureau of Labor Statistics. "Information Security Analysts."

  4. U.S. Chamber of Commerce. "Understanding America’s Labor Shortage."

  5. "Countries with Water Scarcity Right Now."

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