Scarcity

Scarcity is the basic economic problem that arises because people have unlimited wants, but
resources are limited. Because of scarcity, various economic decisions must be made to allocate
resources efficiently. Some wants must be given up so that others can be achieved.

The fact that choices have to be made about how to use limited resources to meet unlimited
wants affects individuals, businesses, industries, governments, and even the worldwide economy.

It is an important concept for the study of consumer demand and how individuals and business
make consumption, production and investment choices.

At the individual level, time is an example of a scarce resource. The hours you spend working to
make an income are hours that you don’t spend relaxing or with your family.

At the business level, money is an example of a scarce resource. The dollars spent on rent,
wages and raw materials are dollars that don’t go towards profit.

On the government level, land is an example of a scarce resource. With only so many square
miles of usable land available, agencies from city councils to the federal government must make
decisions about the best use of space – land turned into a park is land that cannot be used for
roads or houses.

Ultimately, scarcity is all about compromise – in order to gain one resource, you must cut back
on another.