What is meant by scarcity?
Scarcity refers to the lack of resources in the economy to fulfil the unlimited wants of the society. It is the finiteness of resources as opposed to the infinite want of resources by individuals and businesses. It is the economic concept of rationally, utilising the available resources as they are limited.
Economics is the study of efficient usage of scarce resources and is the channel through which people can choose between the trade-offs based on their decisions. Either it involves enjoying a balanced supply of the scare resource over a longer period or it is higher usage in the current period followed by no usage in future periods.
It is always better to have a balanced approach when dealing with resources, as all resources are scarce. The study of economics assumes that resources are limited, and thus, their usage needs to be rationed.
Commodities that are freely available are more likely to become scarce over time. The theory of scarcity implies that even free resources have a cost attached to them. This cost is the continued usage of the goods in the future. If the free goods are exhausted, then it would be at the cost of living in a world that is deprived of such resources. Economics helps in rectifying this problem through resource allocation.
What is the problem of scarcity in economics?
The problem of scarcity refers to the problem that arises because of limited availability of resources in the economy. When faced with a choice to exploit a resource or to find an alternative, consumers must decide upon one. The option that is forgone, or not opted for, is the opportunity cost.
Economics studies how and what to produce out of these scarce resources and the problem of scarcity is one of the foundation blocks in achieving the same.
What are the different types of scarcity?
Scarcity can be of three types, based on the causal factors behind it:
- Demand-Induced Scarcity: This refers to the scarcity that arises because of demand being higher than the supply. As people demand more than the optimal level, the supply falls short of the demand and a scarcity arises.
- Supply-Induced Scarcity: This is the scarcity that arises because of decreased supply due to unforeseen calamities or disasters or production constraints. The supply is lesser than the optimal level, and thus, it is not able to fulfil the demand in the economy.
- Structural Scarcity: This is the scarcity that occurs when different sections of the society have unequal access to the resources.
How does scarcity affect the markets?
As resources become scarce, their prices rise. This can be seen in the demand and supply graphs shown below. In both the cases, prices are rising. Thus, scarce goods are more likely to influence prices.
Since scarce goods experience greater demand, they are more likely to grasp higher prices. Consider, for instance, high-end technological devices. Devices that involve a large amount of skill and high level of research and development in their inception are more expensive than the products that involve a less advanced level of technology.
Why are free and abundant resources considered scarce?
Resources that are readily available like time or oxygen, can also be considered scarce. Consider the fact that air is free and can be consumed by all, irrespective of the socio-economic conditions of its consumer. However, the choice arises when the consumer must decide whether to keep the air pollution free or not.
As individuals cause more and more harm to the environment, the breathable air starts to deplete. Thus, even an abundant resource can be brought to its end if corrective measures are not adopted in time.
Similarly, even time and money are scarce resources. Consider the 24 hours available to humans in a day. Every individual, irrespective of their socio-economic conditions, has the same amount of time in a day. However, the trade-off exists between leisure and work. Those who do not work and spend time doing leisure might have a lack of money while those who earn a lot, might be deprived of a good night’s sleep or enough leisure time.
Thus, a trade-off exists even between free and readily available resources. This means that almost all resources available to humans are scarce. Thus, they need to be utilised wisely, and an appropriate trade-off must be made.
What are the effects of scarcity?
Prolonged inaction upon the problem of scarcity can lead to a depletion of resources. Continued usage of resources by firms may not end up well in the long run and may cause market distortions.
Moreover, the price increase that arises because of scarcity of resources can make the distribution of goods less equitable. Thus, the inequalities in the distribution of goods can further increase because of scarcity.
Most importantly, if resources are left to deplete over time, it can lead to severe environmental damage.
Are there any solutions to overcome the scarcity of resources?
Economics suggests that goods will always remain scarce because human wants are unlimited. Thus, there is no one shot solution to combat scarcity. However, small steps can be taken to ensure that resources remain equitable and last over several generations.
Governments can introduce measures to ensure that wastage of resources does not take place. Stricter laws need to be implemented to ensure that more sustainable lifestyles are adopted by people.
Countries can also look for alternatives to the existing resources. This would require increased costs in terms of the research and development required to find such solutions, as well as capital to execute them.
Quotas can be implemented on the current usage of resources to ensure that a lot of resources are not consumed by a single section of the society.
Pollution control, less usage of fuel, curbing deforestation, going green are all lifestyle choices that can be adopted to ensure that resources last for a longer period and remain equally available for all sections of society.