‘Scarcity’ and ‘Shortage’, though both words are fairly common and seem synonymous, but they are usually misinterpreted. In layman’s terms, they may be used interchangeably, but in the field of economics, they are completely different terminologies. The easiest way to distinguish between the two terms is that scarcity is a naturally occurring limitation on the resource that cannot be replenished. A shortage is a market condition of a particular good at a particular price. Over time, the good will be replenished and the shortage condition resolved.
A shortage occurs whenever quantity demanded is greater than quantity supplied at the market price. More people are willing and able to buy the good at the current market price than what is currently available. When a shortage exists, the market is not in equilibrium. At equilibrium, the quantity demanded equals the quantity supplied at the market price. A shortage occurs when more people want to buy a good at the current market price than what is available. Shortage can be termed in a simple manner as a situation when there is more demand than supply in the market. This means that shortage is man-made. If the sellers and producers want, they can increase the supply of resources in the market; however, they do not do so, to push the prices of the product. When the market prices reach their desired level, they pump in the resources in the market. However, a shortage may not be deliberately created by suppliers, it may also be created by natural calamities, war, emergency situations etc.
In economics, when we state that something is scarce, it implies that something is available in limited quantity naturally. It does not mean short-term or temporary unavailable. Scarcity is permanent in nature. All nations face economic problems because resources are scarce, and wants unlimited. Hence, every economic system has to answer this question of scarcity, and accordingly, plan for the production requirements. Limited resources that can never be replenished through production or importation – i.e., oil and water – are scarce. Basic goods or resources that cannot be distinguished from each other by product differentiation or technological innovation are considered commodities. A commodity is usually scarce. Scarcity is a natural condition prevailing in every country. It is a natural phenomenon which sets limit in the production of goods and services needed by man. It is the reason why we need to maximize the use of our resources.
- A shortage is man-made and temporary whereas scarcity is natural and permanent.
- Almost all resources are scarce, but shortage is caused due to the market situations or other temporary reasons.
- A shortage can be temporary or long-term, but scarcity always exists.
- A shortage results from rising prices, a scarcity results from falling prices.
- A shortage is a lack of all goods and services, a scarcity concerns a single item.
- A shortage can be removed but a scarcity cannot be removed. It will always exist.
- A shortage is price determined whereas scarcity is a natural phenomenon.