What’s the Difference Between Scarcity and a Shortage?

Countries around the world have been experiencing scarcity and shortages. What's the difference between the two issues?

Mohit Oberoi, CFA - Author

Aug. 24 2022, Published 9:45 a.m. ET

Empty shelves due to a shortage of goods
Source: Getty Images

Since the onset of the COVID-19 pandemic in 2020, Americans have been struggling with shortages. Are they the same as scarcity? What's the difference between the two issues?

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Simply put, scarcity is related to the supply side, whereas shortages can be either a demand-driven or supply-side issue. The scarcity of any item arises from its limited availability. Natural resources, such as coal, oil, and copper are perfect examples here.

supply chain shortages
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Shortages can be due to both demand and supply factors

Meanwhile, shortages can be caused by both demand and supply. The shortages we saw in 2021 were mostly supply-side issues, with global supply chains hampered by the COVID-19 pandemic. Demand also rebounded faster than expected.

The peanut butter and Sriracha chili sauce shortages were purely due to supply-chain issues, as their production was impacted. Shortages can be seasonal as well, such chicken wings before the Super Bowl and turkey before Thanksgiving, where demand is to blame.

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peanut butter shortage
Source: Unsplash

Scarcity is long term, whereas shortages can be either short or long term

Scarcity is a long-term phenomenon, whereas shortages can have a shorter lifespan. Typically, a shortage of any good would push more companies into the industry, easing the shortage.

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Some things can be both scarce as well as in short supply

Scarcity applies to goods that can't be produced easily. An example would be water, a scarce natural resource. Whereas two-thirds of the Earth's surface is covered by water, drinking water is scarce. The scarcity is particularly problematic in countries that have a higher share of the world population but a much lower share of fresh drinking water.

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Whereas water is scarce, there have also been shortages of water. In 2020 and 2021, the demand for distilled water spiked amid the COVID-19 pandemic, with many people using it to wash their masks.

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Oil is another example. It's a scarce natural resource but can also be in short supply at times. In 2022, the oil and gas supply has been impacted by Western sanctions against Russia, a major oil and gas exporter. The same goes for copper. Copper markets are expected to be in oversupply in 2022 and 2023, but we could see a copper shortage by the middle of this decade.


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