Investopedia

Continue to Site »

Scarcity Principle

Filed Under » , ,
Dictionary Says

Definition of 'Scarcity Principle'

An economic principle in which a limited supply of a good, coupled with a high demand for that good, results in a mismatch between the desired supply and demand equilibrium. In pricing theory, the scarcity principle suggests that the price for a scarce good should rise until an equilibrium is reached between supply and demand. However, this would result in the restricted exclusion of the good only to those who can afford it. If the scarce resource happens to be grain, for example, individuals will not be able to attain their basic needs.

Investopedia Says

Investopedia explains 'Scarcity Principle'

When a product is scarce, consumers are faced with conducting their own cost-benefit analysis, since a product in high demand but low supply will likely be expensive. This means that the consumer should only take action and purchase the product if he or she sees a greater benefit from having the product than the cost associated with obtaining it.

Articles Of Interest

  1.

    The History Of Economic Thought

    Economics is a vital part of every day life. Discover the major players who shaped its development.

  2. A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.

  3. Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.

  4. Investing In Fine Wine

    If you fail to uncork profits in this market, you can always toast your loss.

  5. Leading Economic Indicators Predict Market Trends

    Leading indicators help investors to predict and react to where the market is headed.

  6. 5 ETFs Flaws You Shouldn't Overlook

    Despite their popularity, exchange traded funds have some drawbacks that investors should know about.

  7. Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.

  8. Using The Price-To-Book Ratio To Evaluate Companies

    The P/B ratio can be an easy way to determine a company's value, but it isn't magic!

  9. Liquidity Vs. Solvency

    Learn about the differences between these two words and how each one is used in the stock market.

  10. Prisoner's Dilemma

    Learn more about this classic game theory scenario.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Abatement Cost

    A cost borne by many businesses for the removal and/or reduction of an undesirable item that they have created.

  2. Validation Period

    The amount of time necessary for the premium on an insurance policy to cover the commissions, the cost of investigation, medical exams and other expenses associated with the issuance of the policy.

  3. Winner's Curse

    Because of incomplete information, emotions or any other number of factors regarding the item being auctioned, bidders can have a difficult time determining the item's intrinsic value. As a result, the largest overestimation of an item's value ends up winning the auction.

  4. Glocalization

    A combination of the words "globalization" and "localization" used to describe a product or service that is developed and distributed globally, but is also fashioned to accommodate the user or consumer in a local market.

  5. Disaster Loss

    A special type of tax-deductible loss, similar to a casualty loss, where a loss has been incurred by taxpayers who reside in an area that has been designated as a federal disaster area by the President.

  6. Fool In The Shower

    The notion that changes or policies designed to alter the course of the economy should be done slowly, rather than all at once.
Trading Center