Thursday, July 18, 2013

Econ: Shortages and Price

From Conversable Economist:

Increasing Your Supply of Shortages

Every teacher of economics needs examples of shortages: more specifically, examples of a situation in which the quantity demanded exceeds the quantity supplied at the prevailing market price. Robert S. Goldfarb is on the job with examples and insights in "Shortage, Shortage, Who's Got the Shortage?" in the most recent issue of the Journal of Economic Education (44: 3, pp. 277-297). Goldfarb provides six categories of shortages, and offers examples of points to make in the classroom and possible quiz or discussion questions for each. 

Category 1: A Demand Deadline Enables a Short-Run Shortage

Useful examples here are popular Christmas toys, where quantity demanded runs ahead of quantity supplied as the big day approaches. Examples over the years include Zhu Zhu Pets in 2009, Tickle Me Elmo in 1996, Transformers in 1984, Cabbage Patch Kids in 1983, and all the way back to Shirley Temple dolls in 1934. Goldfarb also suggests flu shots as an example of shortages in this category.

Category 2: Dynamic Shortages due to Lags in Supply or Demand

If demand shifts out faster than supply can adjust, or supply shifts back faster than demand can adjust, a shortage can emerge. Goldfarb offers the example of the nursing shortage, where demand rises faster than supply can keep up, and so even with rising wages, a shortage persists: "[A] dynamic shortage is like a dog chasing its tail—and perhaps occasionally catching it.”...MORE