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Difference Between Surplus and Shortage

The state of balance or rest due to the equal action of opposing factors, commonly referred to as equilibrium, affects supply and demand. When economic forces are not in balance, a surplus and shortage may be experienced. This causes disruptions in the market, and if not controlled, can lead to market disequilibrium. For markets, equilibrium is achieved through the supply at the prices at which the market demands. This is, however, not always the case as surplus and shortages often occur. 

Surplus

This is the amount of a resource that exceeds the amount that is actively utilized. It can be used in the context of profits, goods, tax, income and capital. 

In an economic surplus, a consumer surplus occurs when the current price of goods is lower than the price consumers are willing to pay. This leads to an over purchase, hence causing a shortage in the product. A producer surplus occurs when products are availed to the market at a higher price than consumers are willing to pay, which leads to fewer purchases, hence an overproduction. 

Due to the different price thresholds in sales and purchases and competition, a surplus often occurs as a result of a disconnect between demand and supply for a product. This results in market disequilibrium in the demand and supply of a product, which affects the product’s flow in the market. To remedy this, the government may implement a price floor, which is the minimum price a product should be sold. This however, often does not benefit the consumers but the businesses. 

In most instances, however, this imbalance naturally corrects itself. A surplus often forces some producers to lower their prices. This in turn forces other firms to lower their prices, which leads to an increase in demand. This moves the market towards price and quantity equilibrium. 

Shortage

This is a condition whereby there is an excess demand of products in comparison to the quantity supplied in the market. This causes market disequilibrium. 

The causes of shortage include;

  • Increase in demand- A sudden increase in the demand of a product leads to shortages
  • Government intervention- In a bid to protect consumers, the government may impose interventions, such as price ceilings. This is the maximum price of a product in the market. Such regulation can interfere with the supply, as some suppliers may opt-out of the supply chain at the imposed prices. 
  • A Decrease in supply- A drastic decrease in the supply of a product will result in shortage. 

Other causes of a shortage include the inability of a company to produce and supply goods and services, natural disasters and labor shortages as a result of business and consumer trends. 

Although a shortage may require government intervention, in most instances the imbalance clears out by itself. In the case of a shortage, consumers cannot purchase as much as they would like. Producers are forced to raise the quantity and the prices of products they are willing to supply in the market. Although the increase may be too much for some customers, other customers will purchase the product, and equilibrium will eventually be reached.   

Similarities between Surplus and Shortage

  • Both result in disequilibrium in the market

Differences between Surplus and Shortage

Definition

Surplus refers to the amount of a resource that exceeds the amount that is actively utilized. On the other hand, shortage refers to a condition whereby there is an excess demand of products in comparison to the quantity supplied in the market.

Government intervention

To remedy a surplus, the government may implement a price floor, which is the minimum price a product should be sold at. On the other hand, to remedy a shortage, the government may impose a price ceiling, which the maximum price of a product in the market. 

Self-equilibrium mechanism

A surplus often forces some producers to lower their prices which in turn forces other firms to lower their prices. This leads to an increase in demand which moves the market towards price and quantity equilibrium. On the other hand, a shortage forces producers to raise the quantity and the prices of products they are willing to supply in the market. Although the increase may be too much for some customers, other customers will purchase the product, and equilibrium will eventually be reached.   

Surplus vs. Shortage: Comparison Table

Summary of Surplus vs. Shortage

Surplus refers to the amount of a resource that exceeds the amount that is actively utilized. On the other hand, shortage refers to a condition whereby there is an excess demand of products in comparison to the quantity supplied in the market. Although these imbalances naturally correct themselves in most instances, government intervention may be at times needed to reach equilibrium. 

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References :


[0]Mark Hirschey. Fundamentals of Managerial Economics. Cengage Learning Publishers, 2008. https://books.google.co.ke/books?id=DvAV1uiLG8QC&pg=PA131&dq=Difference+between+surplus+and+shortage&hl=en&sa=X&ved=0ahUKEwirseq54NnpAhWUBWMBHcroABoQ6AEIJTAA#v=onepage&q=Difference%20between%20surplus%20and%20shortage&f=false

[1]Arnold Roger. Macroeconomics. Cengage Learning Publishers, 2008. https://books.google.co.ke/books?id=fmsP-fTAaCUC&pg=PA73&dq=Difference+between+surplus+and+shortage&hl=en&sa=X&ved=0ahUKEwirseq54NnpAhWUBWMBHcroABoQ6AEILjAB#v=onepage&q=Difference%20between%20surplus%20and%20shortage&f=false

[2]John F. Weeks. Economics of the 1%. Anthem Press Publishers, 2014. https://books.google.co.ke/books?id=BkzHBgAAQBAJ&pg=PA7&dq=Difference+between+surplus+and+shortage&hl=en&sa=X&ved=0ahUKEwirseq54NnpAhWUBWMBHcroABoQ6AEIWjAG#v=onepage&q=Difference%20between%20surplus%20and%20shortage&f=false

[3]Image credit: https://upload.wikimedia.org/wikipedia/commons/thumb/e/e9/Surplus_from_Price_Floor.svg/500px-Surplus_from_Price_Floor.svg.png

[4]Image credit: https://www.picpedia.org/clipboard/images/shortage.jpg

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