Market deficit in the economy: definition, features and mechanisms

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:46

What is a market (commodity) deficit? When does he appear? Is there a shortage of goods in a market economy? These, as well as a number of other questions, will be answered within the framework of the article.

General information

Let's first define what a market deficit is. This is the situation when quantitatively demand exceeds supply at a given price level. The phrase may seem difficult to understand, so let's break it down.

A certain price is set for each product on the market, at which it is sold. When demand exceeds supply, the product sells out quickly and disappears from the shelves. And sellers usually take advantage of the situation by increasing the price. Producers, stimulated by rising incomes, begin to produce more of the scarce good. In this case, market equilibrium will be established over time.

Further, two scenarios are possible. If the trend continues, the situation may become problematic again, and consumers will again suffer from a shortage of the specified product, the price of it will increase. Or the market will be saturated, the rush demand for the product will disappear, which will lead to a drop in cost and a reduction in the rangeproduct on the market. Potentially, this situation could lead to an “overproduction crisis.”

Thus, sellers can realize their interests in making a profit only for a limited time. It is believed that the market equilibrium is optimal for the economy. Then on the list of desired market conditions are surplus and scarcity. The focus of the article will be on only the last of them, but for the sake of completeness, we will touch on other topics. After all, what is market equilibrium, surplus and deficit, it is easiest to understand when a connection is drawn between them.

Time Frame

Is a permanent deficit possible in a market economy? No, this is ruled out by the very principles of building the system. But it can persist for a long time, provided that the price increase is limited by certain factors. As such, one can name state regulation or the lack of physical opportunities to increase the output of goods. By the way, if there is a chronic market deficit, then this indicates that enterprises have no incentives to correct the situation or the state does not want to help them in this. In such a case, one can observe a decline in the standard of living, as people can no longer fully satisfy their needs with goods.

Consequence of deficits

When such a situation occurs and queues begin to line up for the goods, even if there is competition, the seller is not interested into improve the quality of their product and the level of service. For example, consider the situation with the Soviet Union in the last years of its existence. Shops started working late and ended relatively early. At the same time, there were always huge queues, despite which the sellers were in no hurry to serve the buyer. This irritated the buyers, resulting in constant conflicts. Another consequence of the market deficit is the emergence of the shadow sector. When a product cannot be purchased at official prices, there will always be enterprising people who will look for ways to sell products at a significantly inflated cost.

Shadow market

We have already figured out what a deficit is. Now let's pay attention to the shadow market. It occurs when there is unsatisfied demand. In such conditions, there are always those who want to satisfy him, but at inflated prices that have nothing to do with the officially declared ones. But there are limits here too - after all, the higher the cost, the fewer people will be able to afford a certain product or service.

Excess

This is the name of the situation in the market, which is characterized by an excess of supply over demand. Surplus can occur in cases where there is a crisis of overproduction or a product (service) is offered at a price that the average citizen cannot pay. The occurrence of such a situation is possible due to state regulation.(for example, setting a minimum cost for a product).

Here, too, no matter how paradoxical it may sound at first glance, a shadow market may arise. All that is needed for this is that some sellers have incentives to sell their products at a lower price than officially established. In this case, the lower ceiling can be set at the level of cost plus the minimum profitability at which the manufacturer agrees to produce a product or provide a service.

Market Equilibrium

Scarcity and excess have their pros and cons. The optimal situation is considered when there is an equilibrium price. When it is quantitatively the supply is equal to the demand. Certain difficulties arise when one of these parameters is changed. In such cases, there is a high probability of loss of market equilibrium. Even more risky is the situation when they change at the same time. At the same time, it is necessary to take into account the fact that market equilibrium, deficit and surplus can quickly arise or disappear. So, when demand increases, it leads to the fact that the price is literally "pushed" in the direction of growth. A significant supply in quantitative terms, in turn, puts pressure on the cost from above. This is how market equilibrium occurs. There is no shortage/surplus in this case.

Features

So we found out what is the deficit in a market economy. Now let's look at situations where it can occur.

First of all, it is necessarynote the inefficient use of the state regulatory mechanism. In particular, price ceilings. We have already considered the minimum cost, but the most popular is still the setting of the upper bound. Such a mechanism is a popular element of social policy. Most often it is used in relation to essential goods. With this, everything is clear. But when can you see the price limit (minimum level) in action?

The state resorts to the use of this mechanism in cases where it is necessary to avoid the crisis of overproduction and the subsequent collapse. It can also be used to stimulate certain types of goods. As a supplement, all surpluses that have not been bought by the people in the market are purchased by the state itself. Of these, a reserve is formed, which will be used to regulate the situation in the event of a shortage. An example is food crises.

Mechanism of scarcity

Let's consider the situation of how there is a lack of supply of goods and services. There are several most common schemes:

Due to economic processes. So, there is an enterprise that has successfully entered the market. It offers a good and quality product that many people want to buy. But initially it cannot provide everyone, and there is a certain shortage of goods or services. Over time, it will be able to eliminate and even create an excess. But the development of newproposals will call into question its further release. Therefore, if someone wants to buy an outdated sample of this product, then he will face a shortage. Its characteristic feature will be that it will not be large.
Due to the change in ownership. An example is the situation that arose during the collapse of the Soviet Union. After the creation of new states, the old economic ties collapsed. Production at the same time largely depended on enterprises located in another territory. As a result, plants, factories and so on were idle. Since the necessary products were not produced in the required quantity, it gradually became less on the market. There is a shortage.
"Provided" shortage. Occurs in cases where it is predetermined how much of something will be released, and no more is planned. Examples include "anniversary" books or expensive cars. In the case of the latter, one can cite Lamborghini, individual models of which are produced in batches of several pieces and only once.

Conclusion

Market deficit is not welcome in any state. It is better to live in times of abundance. But alas, humanity has not yet grown up to it. The best thing we can "boast" is the equilibrium of prices. In addition, it is difficult to avoid short-term deficits during exacerbations of crises. If we carefully look at the current state of affairs, we can confidently say that we still have much to do.develop. Building an economic system that would not know the negative aspects, such as crises and deficits, is the cherished dream of many people. Attempts to chart the path were made by Karl Marx, and there are many modern doctrines that offer various mechanisms that can potentially help humanity on its path to abundance.