A shortage is created when the demand for a product is greater than the supply of that product. Typically, shortages are temporary and can be fixed by replenishing the supply of goods and products. There are three conditions that can create a shortage:
- Increase in demand — occurs when consumers suddenly demand more of a product. For example, demand for a new automobile that a manufacturer cannot fulfill. - Decrease in supply — occurs when the supply of a good drops. For example, a virus among pigs means many of them must be euthanized, creating a shortage of pork products. - Government intervention — a government can impose a cap on prices (i.e., a price ceiling), allowing more people to buy a good than would be realized in a free market.
In command economies, where governments control the prices of products and services, shortages are rather common. They can occur when products in high demand are fixated at lower prices.
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