What Is Scarcity?

Scarcity is an economic concept where individuals must allocate limited resources to satisfy their needs. Scarcity occurs when demand for a good or service is greater than availability. Scarcity affects the monetary value individuals place on goods and services.

Production and Demand

If goods andꦕ services are abundant and unlimited, there is no need to make decisions about allocating resources. However, scarci🐷ty limits the choices available to consumers in an economy. Scarcity makes goods more valuable and sellers can set higher prices. 

Scarcity also describes the relative availability of factors or production or economic inputs.Suppose producing a widget requires two labor inputs: workers and managers, with one manager required per 20 workers. The available labor pool consists of 20,000 workers and 5,000 managers. There are more available workers than managers. Yet, workers are a relatively scarce resource, since they're needed for a ratio of 20 per manager for production, but outnumber managers by a ratio of only 4 to 1 in the labor pool.

Societies face limitations when trying to increase supply. Production capacity, land available for use, time, and labor are all considerations. Another way to deal with scarcity is by reducing demand through quotas, 澳洲幸运5开奖号码历史查询:rationing, or 澳洲幸运5开奖号码历史查询:price caps.

Natural Resource Scarcity

Abundant common resources over-consumed at zero cost at first often prove limited. Climate isn't a 澳洲幸运5开奖号码历史查询:tangible asset and its value is hard to calculate, but the 澳洲幸运5开奖号码历史查询:c♔osts 🅠of climate change affect companies and societies. Air is free, but clean air has a cost in terms of the economic activity discouraged to prevent pollution for health and 澳洲幸运5开奖号码历史查询:quality of life.

Some 澳洲幸运5开奖号码历史查询:natural resources that may appear free because they are easily and widely accessible eventually prove scarce as they are depleted from overuse in a 澳洲幸运5开奖号码历史查询:tragedy of the commons. Economists increasingly view a climate compatible with human welfare as scarce goods because of the cost of protecting them and place a price on them for a 澳洲幸运5开奖号码历史查询:cost-benefit analysis.

Governments may require manufacturers and utilities to invest in pollution control equipment, or to adopt cleaner power souܫrces. Governments and the reg🃏ulated industries eventually pass costs to taxpayers and consumers.

Scarcity and the Market

Scarcity may denote a change in a 澳洲幸运5开奖号码历史查询:market equilibrium raising the price based on the 澳洲幸运5开奖号码历史查询:law of supply and demand. In those instances, scarcity denotes a decrease over time in the supply of the product or commodity relative to demand. The growing scarcity reflected in the higher price required to attꦬain a market equilibrium could be attributable to one or more of the following:

• Demand-induced scarcity reflects rising demand
• Supply-induced scarcity caused by diminished supply
• Structural scarcity attributable to mismanagement or inequality

The Bottom Line

When individuals must allocate limited resources to satisfy their needs, scarcity occurs. Scarcity limits the choices of consumers in an economy. Scarcity can affect a country's money supply, natural resources, available labor, and means of production.