Scarcity is a natural limitation on resources, while shortage is a temporary restriction caused by human intervention. Scarce resources, such as oil and water, cannot be replenished, while shortages result from a conscious decision to reduce production. Shortages can be corrected by raising prices, while scarcity cannot. Consumers respond differently to scarcity and shortages depending on the availability of substitute products.
Scarcity is a naturally recurring limitation on the availability of a resource or good; shortage is a temporary restriction on the availability of a good resource due to intentional human intervention. Scarcity and shortage are economic problems resulting from insufficient resources or lack of economic goods. The real causes of scarcity and shortage are what distinguish the two words. Limited resources that can never be replenished through production or importation, such as oil and water, are scarce. Shortages result from the conscious decision of a producer, seller, or government regulator to reduce the production of a particular resource or good. Knowing the distinction between scarcity and shortage is very important.
Scarcity and shortages typically vary in the types of resources and products that affect and have different impacts on consumer choices. A commodity is usually in short supply. Basic goods or resources that cannot be distinguished from each other by product differentiation or technological innovation are considered commodities.
Oil, coal, water, and land are examples of commodities. These natural resources are also scarce. They are only available in limited quantities and cannot be played once sold out. As the population increases, the demand for these resources grows as production inputs and key life-sustaining factors. Such consumption creates an inevitable shortage in the supply of these products.
In economics, shortages result from manipulating the availability of a product to consumers in the open market. This illustrates another difference between scarcity and shortage. The availability of scarce products is determined by the price; the quantity of scarce goods never changes based on the price. Shortages are created when products are priced at a level that creates consumer demand that exceeds the output of the product. Sellers, producers, and producers in these situations have the ability to correct deficiencies, but choose not to at current price levels.
The law of supply and demand states that prices rise when demand for a good exceeds supply. Consumers are willing to pay a higher price for a product they need or want, but cannot find it readily available. Once prices reach a level that satisfies the interventionists who created the shortage, normal production will resume.
Consumer response to scarcity or shortage varies by product. Gold is one of the scarcest resources in the world. Its rare nature makes it very valuable and makes the cost of obtaining it very high during economic downturns. Since most people don’t need gold to carry out their daily activities, the price consumers are willing to pay for it makes it cyclical.
Oil is another scarce resource. Unlike gold, this commodity plays a key role in transportation, manufacturing and energy. Consumers accept oil prices out of necessity.
Shortages can elicit a different reaction from consumers depending on the availability of substitute products. For example, farmers may find that corn is being requested at prices they are unwilling to sell for and decide to limit supplies. If corn is a staple of the consumer’s diet, prices will rise rapidly and shortages will end. If there is a cheaper vegetable that can meet the consumer’s dietary needs, they will likely buy it instead. This will end the shortage by forcing farmers to increase their corn production in order to regain lost market share for the plant replacer.
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