Managing a Shortage


In the real world, equilibrium prices are always changing. A flood in Brazil may cause the price of coffee to rise; good farming weather in the Midwest will lead to a fall in the price of wheat; advancing technology steadily lowers the price of computers. If enough people are drastically affected by the price change the government may decide to do something about it—whether wisely or unwisely. Rising apartment rents will lead to pressure for rent control, falling wheat prices will lead to pressure for agricultural price supports, and so forth.

When the government controls the price of a good below the market-clearing level, there will be a “shortage.” A shortage is not the same as scarcity. Scarcity simply means that not all desires can be satisfied, and so scarcity is always present. Diamonds are scarce, but there is no shortage—anyone who can pay the price of a diamond can buy one. A shortage exists when goods are not just expensive but unavailable to some people—except perhaps by unlawful means. In a city with rent controls, newcomers may be unable to rent an apartment at all, regardless of their willingness to pay. Thus, faced with a supply shift or demand shift dictating a higher equilibrium price, consumers are bound to lose out one way or the other—either from the higher price if the market adjustment proceeds unimpeded, or from the “shortages” that follow when government interventions keep the price low.

Using the concepts of short-run and long-run supply, let us trace out the consequences of coping with upward pressures on price by imposing a “ceiling.” There are some less visible consequences of price ceiling. Unable to raise price openly, firms may use subtler strategies. They may eliminate discounts or seasonal sales, reduce quality or variety or convenience of their offerings, or concentrate production in product lines that happen to have received a better break from the price-control authorities. Supplies may be sold abroad, leaving even less available for domestic consumers. And of course black markets may arise, providing a wider scope for people specializing in illegal activity. In extreme cases, there may be a breakdown of legitimate trade. In this connection, we can learn much from a previous great inflationary episode associate with World War 11 and its aftermath.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

Commitment to Plan


Management commitment to plan is a difficult concept to define and probably the most difficult area to probe. At the same time, it is in many respects the most crucial area. A deep-rooted sense of commitment is why certain management teams are able to overcome all obstacles and still achieve planned results. It is the same ingredient that enables a team to win against tough competition even though their best players are injured or all the breaks in the game go against them.

Without attempting to be a psychologist, there are several things to look for to determine whether this sense of commitment exists. What has been the track record of those submitting the plan? It is a positive sign if they have a history of fulfilling commitments. Conversely, if the group has not met its commitments in the past, it is essential to find out what has changed to make their commitment to the current plan any more meaningful. Is this evidence that individuals understand how a failure to meet their personal or functional commitments would jeoperdize the ability of the whole group to accomplish its plan? Is there any indication that anyone in the group feels that function has overcommitted or that they have been pressured into making commitments that are unrealistic?

 It is unikely that anyone will admit they are not committed to a plan they developed and recommend. But questions directed to each functional area about the certainty or difficulty of achieving their part of the plan help everyone see what musdt be done to successfully implement the plan. Such questioning helps to establish the importance of each individual’s personal commitments not only to the plan but to the rest of the organization. In a sense, it helps to develop a form of peer pressure, which is just as important in the execution of the business plan as it is in other walks of life. No one enjoys being in the position of having let teammates down.

 My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight