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What happens to prices and buyers when there isn't enough of a product to go around.
Imagine your favorite video game just came out, but when you get to the store, the shelf is empty and 50 other people are standing there waiting. Why does this happen, and why does the price suddenly seem to go up?
A shortage happens when there is not enough of a product for everyone who wants to buy it. In economics, we say the quantity demanded is greater than the quantity supplied. This means if people want a toy, but the factory only made of them, we have a shortage of toys. Shortages can happen for many reasons. Sometimes a product becomes a 'fad' and everyone wants it at once. Other times, a storm might stop delivery trucks from reaching the store, or a factory might run out of the parts they need to build the item.
Quick Check
If a store has 5 apples but 12 people want to buy one, how many apples is the shortage?
Answer
The shortage is 7 apples because .
1. You open a lemonade stand on a very hot day. 2. You only have enough lemons to make cups. 3. Suddenly, a soccer team of players arrives, and they all want a cup. 4. Because , you have a shortage of cups. You have to tell the last 5 players that you are sold out!
When an item is rare, it becomes more valuable to the people who want it. Sellers notice that many people are competing for the same few items. To decide who gets the product, sellers often raise the price. This is called the price signal. If the price of a rare trading card goes from $\$5.00\, only the people who want it the most (and have the money) will buy it. This helps the store manage the crowd, but it makes the item much more expensive for the average buyer.
Quick Check
True or False: Prices usually go down during a shortage.
Answer
False. Prices usually go up because the item is rare and hard to find.
A shoe company releases a 'Limited Edition' sneaker.
1. They only make pairs for the whole world.
2. people want to buy them.
3. The store originally sells them for $\$100.00\ or even $\$500.00$ just to make sure they get a pair. The 'resale' price skyrockets because of the shortage.
Buyers don't just sit around during a shortage! They change their behavior in three main ways. First, they might compete by waiting in long lines or waking up early to get to the store first. Second, they might look for a substitute. If there is a shortage of strawberries, a buyer might buy blueberries instead. Third, some buyers will simply wait until the shortage is over and the price comes back down. When buyers compete, it can sometimes lead to 'panic buying,' where people buy even more than they need because they are afraid the store will run out again.
A huge blizzard is predicted for tomorrow.
1. Everyone runs to the hardware store to buy snow shovels.
2. The store only has shovels left, but people are in line.
3. The store raises the price from $\$20\ per shovel.
4. Some buyers pay the $\$40$ because they must clear their driveway. Others decide to use a broom (a substitute) instead. A few people decide to stay home and wait for the snow to melt (waiting it out).
Which math sentence describes a shortage?
If there is a shortage of bread, what is most likely to happen to the price of bread?
Buying a different, similar item (like buying a pear when apples are sold out) is called using a substitute.
Review Tomorrow
Tomorrow, try to explain to a friend why a 'Limited Edition' toy usually costs more than a regular toy.
Practice Activity
Next time you are at the grocery store, look for an empty shelf. Ask yourself: Is this a shortage? What could people buy instead as a substitute?