The Dangerous Economist: Is there a chip shortage?

Sunday, June 28, 2026

Is there a chip shortage?

A shortage is when the quantity demanded is greater than the quantity supplied and the price is below equilibrium. It does not simply mean that the equilibrium quantity demanded is lower than it used to be or that past customers are not able to buy as much as they had been at a price that was lower than what it is now.

This looks like price has gone up for chips because demand has increased due to AI companies entering the market. I explain below with a graph.

See The Memory-Chip Crisis Is Here—and You’re Footing the Bill: Prices are rising on smartphones, game consoles, laptops and more by Robbie Whelan of The WSJ (Appeared in the June 22, 2026, print edition as 'Shortage Of Chips Drives Up Prices of Devices'.). Excerpts:

"Want a sleek new Microsoft Surface Pro laptop? The latest models start at $1,599, or $600 more than the previous generation, the PC maker said this past week."
"From smartphones to the Sony PS5 Pro (which rose in price to $900 from $750 in April) to PCs, buyers of consumer electronics are getting hit."
"The primary driver is the skyrocketing cost of memory and storage chips"
"These chips are the same ones craved by artificial-intelligence companies"

So the demand for chips has increased. That does not mean that we have a shortage. This graph illustrates what has happened followed by my explanation.

Suppose the black line is the first demand line. P and Q are both 10. But then AI companies enter the market, shifting the demand line to the right by 4 because they buy 4 chips (or maybe 4 million). The equilibrium quantity only rises from 10 (million) to 12 (million). If the AI companies buy 4 million chips that leaves only 8 million for the customers who were in the market before.

This might seem like a shortage to them because they are getting fewer chips than they used to and the price is higher. But we have price where supply and demand intersect (P= 12) and quantity demanded equals quantity supplied.

Also notice that before the demand increase at a price of 12 quantity demanded would have been 8, exactly what the pre-existing customers are now getting. Disappointing for them, but they are being outbid by the AI companies.

Related posts on supply and demand and shortages:

Is There An Aluminum Shortage? (2026)

Is There A Memory-Chip Shortage? (2026)

Is there a mechanic shortage? (2026)

Does Boeing face a shortage of a temperature-regulating part? (2024)

Drug Shortages in America Reach a Record High (2024)

Is There A Booze Shortage? (2022)

Car makers face ‘chipageddon’ (2021)

Does the U.S. have a firefighter shortage (2021)

There is no truck driver shortage in the US (2021)

Chicken Shortage Sends Prices Soaring, and Restaurants Can’t Keep Up (2021)

Is there a shortage of homes? (2020)