"A shortage, in economic terms, is a condition where the quantity demanded is greater than the quantity supplied at the market price." https://www.investopedia.com/terms/s/shortage.asp sounds like it fits the situation to me.

Indeed, investopedia's definition seems to include any time supply is insufficient with no regard for the reason that the market price is not increasing.

This is because the reason is irrelevant to whether there is a shortage or not. A shortage is when at the given price a higher quantity will be demanded than will be supplied.

The normal market solution to a shortage is to raise prices until there is no longer an excess of supply at that higher price

Investopedia’s definition treats the condition where price has not yet aligned to a new equilibrium as equivalent to one where there is a constraint preventing price adjusting to equilibrium. Leaving aside the fairly arbitrary question of whether it is correct to call both conditions “shortages”, it is important to note that they are fundamentally different situations, especially from the perspective of “is a policy change needed to address it and what policy change would that be.”

If my arm hurts, it doesn’t matter if I strained something or it’s bone cancer. To me, they present the same.

In economics, outcomes are all that matter.

does it matter if it's a technical shortage or just and observed one?

The only thing preventing restaurants from changing their prices is the 'penguin on an iceberg' issue. You may be correct in raising your prices, but if other restaurants are willing to lose money longer before they raise their prices your business may suffer/fail because of it before the rest of the market changes their prices/wages.

Kinda, but not really. Remember that a shortage is an excess of demand at a given price. Meaning implicitly that, at the margin, prices could go up some small amount and there will still be a queue/line/excess of people willing to pay that marginally higher price.

So as a restaurant, very roughly speaking, you basically can raise prices until the line starts to go away. Unfortunately customers can be very stubborn and would rather wait in a 1hr line somewhere else, or not go out at all, for quite a while before eventually coming around to the new normal and accepting your new, higher price.

And you will still probably end up with fewer restaurants along the way, as those least-profitable and with the shortest lines outside, go away.

Are customers that aware of price increases? Unless you're eating out at the same joint every day, a 10% increase isn't very noticeable. Say you have an item priced at $9.99, bumping it up 10% makes it $10.99.

Restaurant sales are rarely made up of price conscious buyers. Sure there's a limit, but short of the blue light special crowd, most customers are eating out for either variety, social reasons, or being tired of cooking.

> Are customers that aware of price increases?

Yes. This is exactly the question answered by the concept of supply and demand curves. Of course you can argue about the shape of those curves but their existence is not in doubt.

Supply and demand curves don't address the customer's awareness and perceptions at all price increases. Sure if the price doubles, they'll notice. But a 5-10% increase in something infrequently purchased would not be noticeable to the average consumer. Now if it's something they purchase everyday? They'd notice a penny increase.

> does it matter if it's a technical shortage or just and observed one?

Yes. A so-called “observed shortage” is not a shortage, its just buyers wanting a good without wanting to pay the price it costs to buy in the present market conditions.

A real shortage involves either a constraint which prevents price adjustment to an equilibrium of supply/demand or demand and supply curves shaped in such a way that no equilibrium point exists (which, I guess, is just a very special equilibrium-preventing constraint.)

The solution to an observed shortage of labor is “employers pay more and quit whining”.

The solution (if it is solvable at all) to a real shortage depends on what constraint prevents equilibrium from being reached.

There is a slight distinction here though. I would tend to only describe the situation as a "shortage" if there is insufficient supply to meet demand at the actual price sellers are offering. If restaurants double their prices and thus a lot of people are no longer willing to pay (and are upset), that's not what I would consider a "shortage" (although it might certainly be described as such in headlines or in conversation). In my view that's no more a shortage than the ongoing lack of supply for private jets at the price of $10,000. I'd pay $10,000 for a private jet!

But there can also be a fuzzy area here. There may be situations where most sellers have not raised their prices to respond to decreased supply (for a variety of reasons), and therefore other mechanisms (like who gets in line the earliest) determine who gets to buy. At the same time there may be a small number of sellers who do raise prices (think of the toilet paper hoarders who resell on Craigslist at huge markups). If you consider that higher reseller price to be the "market price" then that wouldn't wouldn't strictly be a shortage, but if you consider the unchanged price to be the market price then that would indeed be a shortage. (In fact, this is why for every natural disaster there are articles with headlines like "Price gouging is actually a good thing; it's the solution to shortages.")

"The solution to an observed shortage of labor is “employers pay more and quit whining”." - Keep in mind that going along with higher prices (wages), there will be a lower quantity (jobs). At least according to your Econ 101 book.

> "The solution to an observed shortage of labor is “employers pay more and quit whining”." - Keep in mind that going along with higher prices (wages), there will be a lower quantity (jobs).

No, that would only be true if there was not an observed shortage; that is, if the current market price was clearing the market with no unmet demand at the market clearing price.

An observed shortage that is not a real shortage means that the market price can rise to the point of market equilibrium without reducing quantity traded. In fact with a normal supply curve shape, the minimum price increase to achieve equilibrium will increase the quantity traded compared to the status quo, as quantity supplied will increase with price. Quantity demanded will be lower than in the status quo, but since the “observed shortage” is quantity demanded being above quantity supplied and, therefore, traded at the current price, that reduction is literally just reducing the “observed shortage” to zero, not reducing quantity traded.

I'm no expert in how economists use the term, but I suppose it could certainly be called a shortage if there is some systemic reason why restaurants can't (or at least think they can't) raise prices in the short term. Personally I don't find that likely, at least based in my region where restaurants have indeed raised prices and many seem to be thriving (although many others failed in 2020).

In a normal economy, most restaurants fail for two simple reasons; poor location and undercapitalization. If you sell a good meal, in a good location, people are very tolerant of price. Getting to that point is where 99% of restaurants fail.

That seems to assume that the products are completely interchangeable. Even between restaurant chains I don't think that's true. And independent restaurants are very individual, even unique. Some people like one type of food or dining experience, some another, and they may forego dining out altogether rather than substitute.

It is a shortage until prices rise, quantity demanded goes down, quantity supplied goes up and a new equilibrium is attained. This might take a few minutes, or even milliseconds, or it might take many months, or it might never happen.