Scarcity Definition

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What Is Scarcity?

Scarcity refers to a basic economics problem—the gap between limited resources and theoretically limitless wants. This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible. Any resource that has a non-zero cost to consume is scarce to some degree, but what matters in practice is relative scarcity. Scarcity is also referred to as "paucity."

Key Takeaways

  • Scarcity is when the means to fulfill ends are limited and costly.
  • Scarcity is the foundation of the essential problem of economics: the allocation of limited means to fulfill unlimited wants and needs.
  • Even free natural resources can become scarce if costs arise in obtaining or consuming them, or if consumer demand for previously unwanted resources increases due to changing preferences or newly discovered uses.


Understanding Scarcity

In his 1932 Essay on the Nature and Significance of Economic Science, British economist Lionel Robbins defined the discipline in terms of scarcity:

Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.

In a hypothetical world in which every resource—water, hand soap, expert translations of Hittite inscriptions, enriched uranium, organic bok choy, bourbon—is abundant, economists would have nothing to study. There would be no need to make decisions about how to allocate resources, and no tradeoffs to explore and quantify. In the real world, on the other hand, everything costs something; in other words, every resource is to some degree scarce. 

Money and time are quintessentially scarce resources. Most people have too little of one, the other, or both. An unemployed person may have an abundance of time, but find it hard to pay rent—a scarcity of money. A hotshot executive, on the other hand, may be financially capable of retiring on a whim, yet be forced to eat ten-minute lunches and sleep four hours a night: They have plenty of funds, but a shortage of time.

A third category has little time or money. People with abundant money and abundant time are seldom observed in the wild. 

Natural Resource Scarcity

Natural resources can fall outside the realm of scarcity for two reasons. Anything available in practically infinity supply that can be consumed at zero cost or trade-off of other goods is not scarce. Alternatively, if consumers are indifferent to a resource and do not have any desire to consume it, or are unaware of it or its potential use entirely, then it is not scarce even if the total amount in existence is clearly limited. However, even resources are taken for granted as infinitely abundant, and since they are free in dollar terms, they can become scarce in some sense.

Take air, for example. From an individual's perspective, breathing is completely free. Yet there are a number of costs associated with the activity. It requires breathable air, which has become increasingly difficult to take for granted since the Industrial Revolution. In a number of cities today, poor air quality has been associated with high rates of disease and death. In order to avoid these costly affairs and assure that citizens can breathe safely, governments or utilities must invest in methods of power generation that do not create harmful emissions. These may be more expensive than dirtier methods, but even if they are not, they require massive capital expenditures. These costs fall on the citizens in one way or another. Breathing freely, in other words, is not free.

If a government decides to allocate resources to make the air clean enough to breathe, a number of questions arise. What methods exist to improve air quality? Which are the most effective in the short-term, medium-term, and long-term? What about cost-effectiveness? What should be the balance between quality and cost? What tradeoffs come with various courses of action? Where should the money come from? Should the government raise taxes, and if so, on what and for whom? Will the government borrow? Will it print money? How will the government keep track of its costs, debts, and the benefits that accrue from the project (i.e., accounting)?

Pretty soon, the scarcity of clean air (the fact that clean air has a non-zero cost) brings up a vast array of questions about how to efficiently allocate resources. Scarcity is the basic problem that gives rise to economics.

What Are the Main Causes of Scarcity?

The primary causes of economic scarcity are demand-induced, supply-induced, and structural. Demand-induced refers to when supply remains static and demand grows. Supply-induced is when the supply of a resource is below that of demand, and structural is when a portion of a population does not have the same access to resources as another portion of the population.

What Does Scarcity Mean in Economics?

Scarcity in economics refers to when the demand for a resource is greater than the supply of that resource, as resources are limited. Scarcity results in consumers having to make decisions on how best to allocate resources in order to satisfy all basic needs and as many wants as possible.

What Is the Difference Between Relative Scarcity and Absolute Scarcity?

Relative scarcity is when a resource is limited in supply, naturally. This has nothing to do with a company not creating enough supply but rather that there is only a certain amount of a resource available on the planet. However, relative scarcity also refers to supply in relation to demand. For example, oil. Though there is an abundance of oil right now, there is a finite amount available, which at some point, will not be able to meet demand. It is a relative scarcity. Absolute scarcity also refers to a resource being naturally limited but not in relation to demand. The best example of this would be time. Twenty-four hours in a day, seven days in a week, and 52 weeks in a year. Time is an absolute scarcity,

How Can a Society Deal With Scarcity?

Societies can deal with scarcity by increasing supply. The more goods and services available to all, the less scarcity there will be. Of course, increasing supply comes with limitations, such as production capacity, land available for use, time, and so on. Another way to deal with scarcity is by reducing wants. The fewer wants, or demands, for certain goods and services that are not basic needs, such as food and shelter, the less stress there will be on limited resources.

Article Sources
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  1. Lionel Robbins. "The Nature and Significance of Economic Science," Page 15. MacMillan, 1932.

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