What is shortage and surplus?

A shortage and a surplus are the two ways a market can fail to clear. In a shortage, demand at the going price exceeds supply, so some buyers go without. In a surplus, supply exceeds demand, so stock piles up unsold. Both signal that the price is away from its balance point.

How it works

Prices usually fix the mismatch. In a shortage, competing buyers bid the price up, which raises supply and cuts demand. In a surplus, sellers cut prices to clear stock, which does the opposite. The process takes time and can overshoot.

When prices are prevented from moving, through a cap or a floor, the imbalance persists. A price ceiling below the balance point creates a lasting shortage, and a floor above it creates a lasting surplus. These gaps are costly even when brief. Shortages mean lost sales and queues, and surpluses mean storage costs, waste and write-downs, so firms and planners watch inventory and waiting lists as early signs that a price needs to move.

Example

Say a city's rent is capped at 900 while the market-clearing rent is 1,200. At 900, 1,000 households want a flat and only 700 are offered, a shortage of 300. If the cap is removed, rent rises toward 1,200, where 800 want a flat and 800 are offered. Had the rent been fixed at 1,500, only 600 would want a flat for 900 offered, a surplus of 300 empty flats. Illustrative numbers only.

In a game economy, a shortage appears when a crafting material is wanted by many and dropped rarely, and a surplus when a reward floods the market, which pushes prices down.

How to model it in Machinations

Use a Source for supply and a Drain for demand, both driven by a State connection from a price Register. Add a Pool for unsold stock and a Pool for unmet demand. Make the starting price a Lever, Play, and chart the Pools to see the gap close or persist.