Scarcity Principle

AAA

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 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.

RELATED TERMS
  1. Free Lunch

    A situation in which a good or service is received at no cost, ...
  2. Demand Elasticity

    In economics, the demand elasticity refers to how sensitive the ...
  3. Microeconomics

    The branch of economics that analyzes the market behavior of ...
  4. Opportunity Cost

    1. The cost of an alternative that must be forgone in order to ...
  5. Scarcity

    The basic economic problem that arises because people have unlimited ...
  6. Income Elasticity Of Demand

    A measure of the relationship between a change in the quantity ...
Related Articles
  1. Options & Futures

    Investing In Fine Wine

  2. Economics

    The History Of Economic Thought

  3. Economics

    A Practical Look At Microeconomics

  4. Options & Futures

    Explaining The World Through Macroeconomic ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center