Scarcity is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs. A common misconception on scarcity is that an item has to be important for it to be scarce, or vice versa. This is not true, for something to be scarce, something must be given up, or traded off, in order to obtain it. Simply put, the price of a good signals the relative scarcity of the good.
The notion of scarcity is that there is never enough to satisfy all conceivable human wants, even at advanced states of human technology. Scarcity involves making a sacrifice—giving something up, or making a tradeoff—in order to obtain more of the scarce resource that is wanted.
The condition of scarcity in the real world necessitates competition for scarce resources, and competition occurs "when people strive to meet the criteria that are being used to determine who gets what." The price system, or market prices, are one way to allocate scarce resources. "If a society coordinates economic plans on the basis of willingness to pay money, members of that society will [strive to compete] to make money" If other criteria are used, we would expect to see competition in terms of those other criteria.
For example, although air is more important to us than gold, it is less scarce (cheaper) simply because the production cost of air is zero. Gold on the other hand has a high production cost. It has to be found and processed, both of which require a great deal of resources. Additionally, scarcity implies that not all of society's goals can be pursued at the same time; trade-offs are made of one goal against others. In an influential 1932 essay, Lionel Robbins defined economics as "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses."
Other uses of the term scarcity
In biology, the term scarcity can refer to the uncommonness or rarity of certain species. Such species may be protected by local, national or international law in order to help prevent extinction. But rarity in economics does not make something necessarily scarce.
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- Abundance mentality (a concept by Stephen Covey, presented in The Seven Habits of Highly Effective People as standing in contrast to the scarcity mindset)
- Artificial scarcity
- Economic shortage
- Post-scarcity economy
- The psychological phenomena of the scarcity heuristic
- Milgate, Murray (March 2008). "goods and commodities". In Steven N. Durlauf and Lawrence E. Blume. The New Palgrave Dictionary of Economics (2nd ed.). Palgrave Macmillan. pp. 546–48. doi:10.1057/9780230226203.0657. Retrieved 2010-03-24.
- Montani, Guido (1987). "Scarcity". In Eatwell, J. Millgate, M., Newman, P. The New Palgrave. A Dictionary of Economics 4. Palgrave, Houndsmill. pp. 253–54.
- Malthus, Thomas R. (1960) . Gertrude Himmelfarb, ed. On Population (An Essay on the Principle of Population, as It affects the Future Improvement of Society. With Remarks on the speculations of Mr. Godwin, M. Condorcet, and other writers). New York: Modern Library. p. 601. Retrieved 2010-03-24.
- Burke, Edmund (1990) . E. J. Payne, ed. Thoughts and Details on Scarcity. Indianapolis, IN: Liberty Fund, Inc. Retrieved 2010-03-24.