ECONOMIC SCARCITY: CHARACTERISTICS, CAUSES AND EXAMPLES - ECONOMY - 2025

The economic scarcity refers to the gap between the limited resources, ie scarce and human desires theoretically unlimited. This represents a basic economic problem.

This situation requires people to make decisions about how to allocate resources efficiently, in order to be able to meet not just basic needs, but as many additional needs as possible.

In his influential essay on the nature and importance of economics, published in 1932, the British economist Lionel Robbins defined economics in terms of scarcity: “It is the science that is responsible for analyzing human behavior as a relationship between the ends and the scarce means that have varied uses ”.

In a hypothetical world where every resource - water, hand soap, enriched uranium, time - was abundant, economists would have nothing to study.

There would be no need to make decisions about how to allocate resources. On the other hand, in the real world everything costs something; in other words, each resource is to some extent scarce.

characteristics

In any economy, limited resources (labor, capital, technology, and natural resources) limit what can be produced. The technical name used by economists to describe this state of affairs is scarcity.

The notion of scarcity is that there is never enough of something to satisfy all conceivable human needs. Scarcity involves making a sacrifice or giving up something to get more of the scarce resource that is sought. The price system is a way of allocating scarce resources.

Scarce goods

A scarce good is a product that has more demand than supply. The economy solves the problem of scarcity by placing a higher price on scarce products. The high price discourages demand and encourages companies to develop alternatives.

Market prices do not eliminate scarcity, but they help people make decisions that combine their consumption and savings with their purchasing power.

Prices have the effect of reducing the demand for products to a more realistic level. For example, if high-powered sports cars were free, everyone would want one.

Causes

Shortages occur when more people want to buy a product at the current market price than what is available. There are three main reasons why an economic shortage can occur:

Increased demand

It occurs when the population or demand for the resource increases, and the supply remains the same.

An increase in quantity demanded could be due to a decrease in price. It can also be due to a sudden market trend where everyone wakes up one morning wanting to own a particular pair of shoes.

Example

Every summer temperatures skyrocket, and everyone has the same reaction: turn on the air conditioning.

Suddenly the demand for energy increases. The unexpected increase in energy demand causes a shortage, also known as brownouts or blackouts.

Supply decrease

It happens when the supply is very low compared to the demand. This happens mainly due to environmental degradation, such as deforestation or drought.

Example

In the grape harvest season, wineries prepare to create new wine bottle blends. However, the grape is a delicate fruit that needs particular climatic conditions to reach a perfect state.

When grape crops suffer, a big change is generated in the supply of the wine market, since there are not enough grapes to produce the typical number of boxes that season.

Structural shortage

It occurs when a part of the population does not have the same access to resources due to political conflicts or their particular geographic location.

Consequences

Due to the shortage, we are forced to choose. Unlimited needs and limited resources create financial problems and choice problems.

This means that you have to decide how and what to produce with limited resources. An opportunity cost is constantly involved in economic decision making.

Resource allocation

It is about establishing the amount of resources required in which sector. It is the basic problem of every economy.

Only limited needs can be met, because you have limited resources. Then, these limited resources are used in such a way that the satisfaction derived from it is maximum.

Proper allocation of resources addresses the following fundamental problems in an economy:

What to produce

This means the amount of goods that will be produced. Each demand of each individual cannot be satisfied, therefore, before producing something, a decision must be made about what goods will be produced and in what quantity.

How to produce

This means which production technique to select: labor-intensive or capital-intensive. After deciding what to produce, we must next determine what techniques should be adopted to produce the goods.

Who to produce for

It means how the goods and services produced will be distributed among different groups of people; that is, who should get how much. This is the problem of sharing the national product.

Examples

- In the Soviet Union, the problem of shortages was solved by queuing. The supply of bread and meat was almost never sufficient to meet the needs of the people. Most of the time the stores were empty, but when supplies arrived at the stores, people lined up to make their purchases.

- In 2012, bird flu wiped out millions of chickens in Mexico, creating a shortage of eggs.

- Coal is used to create energy. The limited amount that can be extracted from this resource is an example of a scarcity.

- If a population of cattle in a country has mad cow disease, it is necessary to sacrifice the animals, which may create a shortage of beef in the country.

Dues

One solution to dealing with shortages is to implement quotas on how much people can buy. An example of this was the rationing system that occurred in World War II.

Due to food shortages, the government set strict limits on how much food people could get, thus ensuring that even low-income people had access to food.

One problem with quotas is that it can lead to a black market. People are willing to pay large amounts of money to obtain additional fees on some products.

References

1. Investopedia (2018). Scarcity. Taken from: investopedia.com.
2. Wikipedia, the free encyclopedia (2018). Scarcity. Taken from: en.wikipedia.org.
3. Varun Khullar (2017). What is meant by the term 'scarcity' in economics? Quora. Taken from: quora.com.
4. Tejvan Pettinger (2017). Scarcity in economics. Economics Help. Taken from: economicshelp.org.
5. Your Dictionary (2018). Examples of Scarcity. Taken from: yourdictionary.com.