Demand is characterized by price. Simply saying you want something does not mean you demand something.
I'd love to find programmers for $1/hr, but I haven't increased the demand for programmers by saying that. I have to offer something a programmer is actually willing to take to be considered demand. And so, again, as long as price is rising, you cannot have a shortage. Every time the price goes up, there will be buyers dropping out of the market not willing to pay the new high.
The result is that only those who can afford programmers will be able to hire programmers, and the supply will exactly equal the demand.
No, demand is characterized by the quantity demanded at a given price. More precisely, the demand curve is a curve of quantity demanded vs. price.
> I'd love to find programmers for $1/hr, but I haven't increased the demand for programmers by saying that.
Not by just saying it, but you could post a want ad for programmers at $1/hr in order to investigate the potential supply of programmers at that price. Of course you would find that it was zero, but that just means there's no supply of programmers at that price, not that there's no demand.
> Every time the price goes up, there will be buyers dropping out of the market not willing to pay the new high.
Now you're assuming that there is supply--programmers available at higher prices--but not demand--clients don't want to pay the offered price. (A more precise analysis would say that the quantity supplied at that price is greater than the quantity demanded--some clients will pay that price but not enough to hire all available programmers.) You're right that this is not a shortage, but that's because it's a surplus instead--supply exceeds demand, instead of demand exceeding supply.
You're also ignoring other possibilities. Programmers could decide to accept lower wages instead of higher ones. "Price" is not something magically set by higher authority; it's the output of the market, not an input to it. In the first case above, if you want a programmer you will have to raise your offered price until you find one that is willing to work at that price. In the second case above, if programmers wanted work they would have to lower their prices (on average) until enough clients were willing to hire all of them.
Okay. So, every formalized definition I could find more or less echoes this one:
"Demand is an economic principle that describes a consumer's desire and willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease demand, and vice versa." – http://www.investopedia.com/terms/d/demand.asp
But you are telling us that demand is evaluated by interest across the entire price spectrum. Therefore, holding all other factors constant, an increase in price does not change the demand at all, as those holding firm at the lower price are still demand.
Whose definition are you using here?
> Not by just saying it, but you could post a want ad for programmers at $1/hr in order to investigate the potential supply of programmers at that price.
Does your definition of demand always require that the buyer be so formal in their investigation?
> but that just means there's no supply of programmers at that price, not that there's no demand.
Which, by your early definition of shortage meaning demand exceeding supply, means that virtually everything is in shortage. The demand, as you call it, at the price of free is almost infinite for any desirable good. That leaves shortage to not seem like very useful terminology whatsoever. Why even bother using the term shortage at all when we can infer that almost everything is in shortage?
And what is special about the shortage of developers that warrants all the media attention? Especially in light of the severe shortage of Ferraris, which I frequently see people expressing their interest to buy at lower prices in these discussions. I never see in the news calls to fix the Ferrari shortage, nor do I see any government intervention to try and correct the lack of Ferraris being produced.
> Now you're assuming that there is supply--programmers available at higher prices
I'm not sure where you got that idea. We have acknowledged right from the beginning that price can stop rising. That's kind of the entire basis of the discussion.
Have you ever looked at an actual textbook?
Even what you quoted does not define "demand" as price. It says "an increase in the price of a good or service will decrease demand"--which implies that "demand" means quantity demanded (at a given price). Which is how I defined it.
> an increase in price does not change the demand at all
I said demand (more precisely, the demand curve) is quantity demanded as a function of price. I certainly did not claim that quantity demanded does not change if price increases.
> Does your definition of demand always require that the buyer be so formal in their investigation?
No, it just requires a market. "Just saying" something does not constitute a market, but making an offer to buy something at a given price does.
> by your early definition of shortage meaning demand exceeding supply, means that virtually everything is in shortage
No, it doesn't. Let me restate my definition of shortage to make the definitions I have been using explicit: it means that quantity demanded exceeds quantity supplied at the current price. That is certainly not true of "virtually everything".
> I'm not sure where you got that idea
From what you said. You said: "Every time the price goes up, there will be buyers dropping out of the market not willing to pay the new high." Why does the price go up? If buyers aren't the ones setting the price (which is obvious since not all of them are willing to pay it), it must be sellers, i.e., programmers. So for your statement to make sense at all, there must be programmers available at the higher prices.
> We have acknowledged right from the beginning that price can stop rising.
I'm not sure who this "we" is that you refer to. You have claimed that "the price is rising", and that this will continue until there is only one programmer in the world who is working. That doesn't sound like acknowledging that the price can stop rising.
"The world has a severe shortage of large diamonds I can buy for pennies."
This is not correct. A shortage is a situation where demand exceeds supply. The only definite statement you can make about such a situation is that it means the market in question cannot be in equilibrium. But there are multiple possible reasons for that. Prices being controlled is actually not one of them: the effect of price controls will not be market disequilibrium but a shifting of the equilibrium.
So the question you should actually be asking is, what is preventing the market from reaching equilibrium? Here are two possible answers:
- Demand is growing faster than supply can keep up.
- Transaction costs (for example, difficulties in employers evaluating candidates' actual potential) are preventing efficient matching of supply to demand.