What Is the Difference between Scarcity and Shortage?

A. Garrett

Scarcity is a naturally recurring limitation on the availability of a resource or good; shortage is a temporary restriction on the availability of a resource of good due to purposeful human intervention. Scarcity and shortage are economic problems resulting from insufficient resources or a lack of economic goods. The actual causes of scarcity and shortage are what distinguish the two words. Limited resources that can never be replenished through production or importation — i.e., oil and water — are scarce. Shortages stem from the conscious decision of a producer, seller, or government regulator to decrease the output of a particular resource or good. Knowing the distinction between scarcity and shortage is very important.

During times of war and political strife, food and other resources may be available but not accessible to people leading to scarcity.
During times of war and political strife, food and other resources may be available but not accessible to people leading to scarcity.

Scarcity and shortage typically vary in the types of resources and products they affect and have different impacts on consumer choices. A commodity is usually scarce. Basic goods or resources that cannot be distinguished from each other by product differentiation or technological innovation are considered commodities.

People living in areas where water is scarce should refrain from unnecessary use of the resource.
People living in areas where water is scarce should refrain from unnecessary use of the resource.

Oil, coal, water, and land are examples of commodities. These naturally occurring resources are also scarce. They are only available in limited quantities and cannot be reproduced once they are depleted. As the population increases, the demand grows for these resources as inputs of production and key factors in the sustaining of life. Such consumption creates an unavoidable dearth in the supply of these commodities.

In economics, shortages result from the manipulation of a product's availability to consumers in the open market. This illustrates another difference between scarcity and shortage. The availability of products in short supply is price driven; the quantity of scarce goods never changes based on price. Shortages are created when products are priced at a level that creates a consumer demand that exceeds output of the product. Sellers, manufacturers, and producers in these situations have the ability to rectify the shortages, but choose not to at the current price levels.

The law of supply and demand states that prices rise when demand for a good exceeds the supply. Consumers are willing to pay a higher price for a product they need or desire, but cannot find readily available to them. Once prices reach a level that satisfies the interventionists who created the shortage, normal production will resume.

Consumer response to scarcity or shortage varies based on the product. Gold is one of the most scarce resources in the world. Its rare nature renders it very valuable and makes the cost of attaining it very high during economic downturns. Since most people do not need gold to conduct their daily routines, 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 may elicit a different reaction from consumers depending on the availability of substitute goods. For example, farmers may find corn is being demanded at prices they are unwilling to sell it for and decide to limit supplies. If corn is a staple of the consumer's diet, prices will rise quickly and the shortage will end. If there is a cheaper vegetable that can satisfy the consumer's dietary requirements, however, they will likely purchase that instead. This will end the shortage by forcing farmers to increase their output of corn in order to regain market share lost to the substitute vegetable.

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Discussion Comments


@ZipLine-- Things like petroleum, gas, water and gems can be scarce because they are natural resources. They cannot be produced, like corn or wheat. They are either found in the earth or not.


@ZipLine-- To make things simple, a shortage is simply something that can be made in greater quantity, but scarcity is not. When something is scarce, there isn't enough of a resource available and this can't be changed. A shortage is when there is more of a product, but it's not being made available in the market by the supplier. Suppliers do this because they don't want their products to be sold below value.

We've heard scarcity and shortage being used interchangeably for so long that it feels like they are the same, but they're not.

I'm still confused about the difference between scarcity and shortage. Aren't scarce goods naturally available in shortage in the market?

For example, isn't petroleum a scarce resources? But the amount of it in the global market is not stable, it's determined by OPEC. So sometimes it's available more abundantly and sometimes it's scarce. So what is the difference between scarcity and shortage in this situation?

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