Business, Legal & Accounting Glossary
Scarcity is an economic principle that refers to infinite wants contrasted with finite resources.
Scarcity is the limited availability of a commodity, which may be in demand in the market or by the commons. Scarcity also includes an individual’s lack of resources to buy commodities.
Scarcity refers to things of value that have a limited or finite supply. In simple words, we can say that there are scarcity-limited resources and unlimited needs.
Commodities such as oil, gold and diamonds are only available to the extent to which they can be found and extracted from the ground. Thanks to the laws of supply and demand, if these commodities are available in large quantities the price will drop, but if demand rises and suppliers are unable to keep up with that demand, then the price will rise and not everybody will get the supply that they want.
Food is grown rather than mined, but nature also provides a limit to the extent to which crops can be grown or animals reared. This would also count as a scarce resource in a world with exploding population numbers.
Citizens of developed countries have tended to take commodities and food for granted, but feel that more intangible items are scarce resources, such as skilled workers, knowledge, time and attention.
Most people probably understand the concept of scarcity without realizing what it is called. At its core, scarcity is simply about how choices are made.
For example, let’s say you are a fan of books. Now, you might like to own every book in the world, however, you know this to be impractical as you are likely lacking the ability to do so in at least four ways. One, you probably don’t have enough money to purchase all these books (capital); two, some books may not even be for sale or may be difficult to obtain(labour); three you may not have the time (labour again) or the means to store all of them (land). So what do you do to compensate for your probable lack of adequate resources (land, labour and capital)? Well, you prioritize and perhaps buy only the books you are most interested in owning, and then if you have enough resources left over you start purchasing some of your lesser favourites. Chances are you already engage in this behaviour.
On the flip side in our example, a bookseller must take this into account as well; he or she might want to stock every book in the world to give their customers the best selection. But again the bookseller is limited by their capital, land and labour, therefore they must prioritize and stock only the books that are most likely to generate sales. This principle spills over to book publishers as well, as again they are limited by the three resources, so that dictates which books they publish.
Scarcity is thus a balancing act between wants and means to acquire those wants.
A notable criticism of the scarcity principle is the underlying assumption that people have unlimited wants. In our previous example, it is more likely that there are very few individuals who even would like to own every book in the world even if they had the means to do so. Furthermore, the number of books a person might want to own could be influenced by external factors such as advertising, societal pressure or individual preference. Modern economics does not consider this significant enough to negate the principle.
opportunity cost
price
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This glossary post was last updated: 28th November, 2021 | 0 Views.