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

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The Emotional


Unless you are more powerful than a locomotive, faster than a speeding bullet, and able to leap tall buildings in a single bound, minding your own business will be emotionally taxing. The mental and physical energy you put into it will at times leave you quite spent. If you don’t know how to refuel and refresh properly you’ll find yourself constantly out of sorts, fuzzy-minded, and ripe for depression. Even when things are on track, if you’re the type who has a prosperity for “borrowing trouble” the mere responsibility of failure is enough to keep you skittish and in knots. Of course, when problems arise matters can become all the worse since the buck both starts and stops with you. If you have only yourself to kick for a problem and lack a healthy sense of self, you could end up abusing yourself. Needless to say, when things go away through no fault of your own, the frustration, if not properly handled, can be devastating. Moreover, until your business begins to pay off you will be susceptible to bouts of doubt and second-guessing that can be debilitating.

 If after having counted all the costs you’re still undaunted about starting a business either immediately or in the near future, then it’s time to get all your ideas and expectations down in black and white by drawing up a comprehensive business plan.

 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