What Is Scarcity?
A fundamental truth of existence is the basis of the economic idea of scarcity: there are finite resources in the world, and decisions concerning their distribution must be made. Every commodity, even a book of matches or a pack of gum, is rare in this sense since resources that might have been used elsewhere were used to manufacture it.
Because scarcity is essential to economics, scarce items are also called economic goods. In economics, scarce products are those for which, with zero cost, supply would not meet demand.
Specific natural resources, which at first glance seem limitless due to their easy and widespread accessibility, later become limited due to abuse, resulting in a tragedy of the commons. Because of the high cost of maintaining clean air and a climate supporting human well-being, economists are beginning to see these as scarce assets that may be valued for a cost-benefit analysis.
Understanding Scarcity
In his 1932 essay on the nature and significance of economic science, British economist Lionel Robbins described economics as the study of human behavior as a link between aims and scarce means with alternative uses.
Economists would have nothing to study in a hypothetical society where everything of worth, from food and water to works of art, was so plentiful it had no cost. Theories explaining the interactions between these choices and trade-offs in an economy would be superfluous if resource allocation decisions did not need to be made.
In the actual world, however, every product has a cost since all the elements of manufacturing have costs. Because an input cannot be used for another purpose, it has an opportunity cost. The opportunity cost represents the scarcity of the inputs.
Scarcity of Natural Resources
Even plentiful common resources used for a long time at no apparent expense ultimately turn out to be neither free nor endless. The consequences of climate change for businesses and society are all too real, even though climate change isn’t a physical asset and is difficult to quantify. Air is free, but clean air has a cost in terms of the value it adds to life and health and the economic activity that is discouraged to avoid pollution.
Governments may impose regulations requiring businesses and utilities to purchase pollution control equipment or switch to cleaner power sources to protect the advantages associated with these resources. These expenses are ultimately passed on to taxpayers and consumers by governments and the regulated sectors. Breathing freely is not free.
Comparatively Fewer Inputs
Although scarcity is essential to economics and human nature, it may also refer to the relative availability of production inputs and variables.5.
Consider a hypothetical widget, for instance, that only needs two labor inputs: managers and workers, with one manager needed for every 20 workers. Moreover, 5,000 managers and 20,000 employees are in the labor pool. There are more workers than supervisors available. Workers outnumber managers in the labor pool by only a 4:1 ratio. Still, they are a comparatively rare resource regarding the percentage needed to create the widgets since they are needed in a ratio of 20 per management for production.
It would be easy to compare land and dairy cattle as productivity variables in this manner. Land may be considered limited if grazing land is the only issue restricting milk output. On the other hand, cattle would be a relatively scarce production element if the herd’s size was the primary limitation on productivity.
Scarcity as a Driver of the Market
In addition, the term “scarcity” may also refer to a shift in market equilibrium that raises the resource’s price by supply and demand. In such cases, scarcity refers to a gradual decline in the quantity of the good or service compared to its demand. Six
There are many possible reasons for the increasing scarcity, reflected in the higher price needed to reach market equilibrium. These include:
- Demand-driven scarcity that reflects increased demand
- Reduced supply leads to supply-induced scarcity.
- Structural shortages brought on by inequality or poor management.
Does scarcity indicate difficulty in obtaining something?
According to all economic definitions, a resource or commodity cannot be considered scarce if it is inaccessible. A market price is one where supply and demand are balanced, allowing anybody to pay the market price for the resource. Scarcity may be used to compare the availability of economic inputs, explain a change in the market toward a higher price, or illustrate the opportunity cost associated with allocating finite resources.
Exist Any Products That Aren’t Scarce?
You may read this article for free. Copyright protection gives other readily copied intellectual property, like music and movies, a sense of scarcity, whereas patents are necessary for innovative medication and device creators to discourage copycats. Many things that seem accessible may have hidden or indirect costs when resources are scarce. Like pure air, the free stock market may have a price if it does not guarantee the finest performance.
How can a society handle limited resources?
Increasing supply is one-way societies respond to shortages. There won’t be as much scarcity as more products and services are accessible to everyone. Naturally, there are restrictions on growing supplies, including time, space available for usage, manufacturing capacity, and so on. Lowering demand is another strategy for addressing shortages. Rising prices may affect market economies, but quotas or rationing might be used in command economies. Quotas and price restrictions are also often used in mixed economies in reality.
Conclusion
- The opportunity cost of allocating scarce resources is communicated via the economic notion of scarcity.
- Regarding products, scarcity means that if they were free, demand would outweigh supply.
- It is becoming more widely acknowledged that common resources like clean air and a healthy climate are rare commodities with prices and values.
- In addition, scarcity may refer to the relative availability of manufacturing inputs or the gradual decline in a resource’s or product’s supply compared to demand.
