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Difference between Surplus and Shortage
Supply and demand are affected by equilibrium, the state of balance or rest brought about by the equal activity of opposing variables. An excess or a deficit might emerge when the wheels of the economy aren't turning in unison. This causes disruptions in the market, which, if not addressed, might cause the market to become unstable.
Supply at market-determined pricing creates a state of balance. In reality, surpluses and shortages are very common occurrences; thus, this is not always the case.
What is Surplus?
This is the amount of a resource that exists beyond current consumption. Profits, goods, taxes, income, and investment capital can all benefit from this.
When the current commodity prices are lower than what consumers are prepared to pay, a consumer surplus exists inside the economic surplus. The outcome is an artificial shortage of a product due to overbuying. Sales drop, and surplus inventory accumulate when goods are provided at a higher price than consumers are willing to pay.
Because of price differences between buyers and sellers and intense rivalry, a surplus often develops when there is a mismatch between supply and demand for a product. This disrupts the balance between supply and demand for the product, which ultimately slows down sales. The government may respond by establishing a minimum price, or "price floor," below which no goods may be sold. However, this is typical to the advantage of businesses rather than regular people.
However, this type of imbalance often corrects itself with time. Many businesses have to lower their prices during times of surplus because they cannot keep up with demand. This causes competitive firms to lower their prices, increasing demand. This restores the equilibrium between supply and demand in the market.
What is Shortage?
An oversupply exists when consumer demand exceeds supply in a given market. Consequently, the market becomes unbalanced.
Insufficient supply occurs for various causes, including but not limited to the following −
Increased demand − When demand for a product suddenly increases, supply becomes limited.
Intervention by the government − The government may impose interventions, such as price controls, to protect its citizens. In the current market, this is the highest price available. Some suppliers may decide to leave the market if they are required to charge over their cost of production; therefore, such legislation might disrupt supply.
A drop in supply − A shortage occurs when the available supply of a product suddenly drops.
A company's inability to produce and ship goods, natural disasters, and labor shortages due to changes in the economy and customer preferences further contribute to scarcity.
The government may have to step in if there is a deficit, but the gap normally closes. When resources are limited, individuals can't get their hands on as much as they'd want. Because of rising demand and stagnant prices, manufacturers are raising the production of all products. The price increase may put some customers off, but the product will still sell to enough people that the market will find a way to maintain a stable equilibrium.
Differences − Surplus and Shortage
The following table highlights how Surplus is different from Shortage −
| Characteristics | Surplus | Shortage |
|---|---|---|
Definition |
When there is more of a resource available than is being consumed, we say that there is a surplus. |
Excessive demand exceeds supply, creating a shortage. |
Government intervention |
The government may set a minimum price for commodities (called a "price floor") in order to deal with a surplus. |
The government may set a price ceiling, the highest possible price for a commodity on the market, to ease a shortage. |
Government intervention |
As a result of a surplus in the market, several companies have had to lower their prices, making it necessary for others to do the same. As a result, demand rises, and the market moves closer to equilibrium between price and supply. |
As a result of the limited supply, businesses have raised both their prices and the volume of goods they can provide customers. Some customers may be put off by the price increase, but the product will still sell to enough people that the market will find a way to maintain a stable equilibrium. |
Conclusion
When there is more of a resource available than is being consumed, we say that there is a surplus. Contrarily, a shortage occurs when market demand exceeds supply. However, government intervention may be necessary to restore equilibrium if the imbalance persists for an extended period of time.
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