SCARCITY

Scarcity

A resource is scarce when there is not enough available to satisfy the various ways a society wants to use it.

Because wants are unlimited but resources are finite, choice is an unavoidable issue in economics.

A situation that arises because people have unlimited wants in the face of limited resources.

Occurs when there are limited quantities of resources to meet unlimited needs or desires.

Is the condition that results from society not having enough resources to produce all the things people
would like to have.
Scarcity
1
Refers to the basic economic problem, the gap
between limited that is, scarce resources and
theoretically limitless wants.
2
Is the limited availability of a commodity, which
may be in demand in the market or by the
commons.
3
Includes an individual's lack of resources to
buy commodities.

4
Scarcity, also known as paucity, is an economics
term used to refer to a gap between insufficient
resources and the many theoretical needs that
people.
5
Scarcity or paucity in economics refers to limitation – limited supplies, components,
raw materials, and goods-in an environment with unlimited human wants. It is the
fundamental economic problem of having what appears to be limitless human
wants in a world with limited resources.
Scarcity
6
Is the result of people having "Unlimited Wants
and Needs," or always wanting something new,
and having "Limited Resources."

Limited resources mean that there are never

enough resources, or materials, to satisfy, or
fulfill, the wants and needs that every person
have.
The problem of scarcity is regarded as the
fundamental economic problem arising from
the fact that, while resources are finite,
society's demand for resources is infinite.

7
Scarcity is a relative rather than an absolute
concept - water is scarcer in the desert and less
scarce in the rainforest.
 SCARCITY
• Scarcity implies the resources that we
value; time, money, labor, tools, land, and
raw materials that exist in limited supply.
• There are simply never enough resources to meet
all our needs and desires. This condition is known
as scarcity.
• Scarcity can involve non-renewable resources,
such as oil, precious metals and helium. It can
also involve potentially renewable resources,
which are being consumed faster than their ability
to replenish (e.g. over-fishing, excess use of fresh
water).
• At any moment in time, there is a finite
amount of resources available.
• Even when the number of resources is very
large, it is limited. Because these resources
are limited, so are the numbers of goods
and services we can produce with them.
• Combine this with the fact that human
wants seem to be virtually infinite, and you
can see why scarcity is a problem.
• Scarcity is a perpetual problem for
economic theory, which often assumes that
humans have unlimited wants but must find
ways to fulfill these wants using scarce
resources.
 Resources Scarcity

 Resource scarcity is  Resource scarcity is

the lack of availability defined as a situation
of supplies required where demand for a
to maintain life, or a natural resource is
certain quality of life. exceeding the supply-
leading to a decline in
available resources.

 An increase in natural resource  Natural resources for example;

scarcity is defined as a reduction natural gas, petrol, coal, gold
in economic well-being due to a and minerals are scarce.
decline in the quality, availability,
or productivity of natural  These resources are made by
resources. nature and since so many
centuries we are extracting and
 In various ways, these models using them. Supply would not
project increasing scarcity of food last forever but demand is rising.
in the future.
Types of 1
Supply-Induced
2
Scarcity
Scarcity
Demand-
Induced

3
Structural
Scarcity
4
Material scarcity

5
Contrived
scarcity
 1
Supply-Induced
Scarcity

 Environmental degradation decreases the overall

amount of a limited natural resource, decreasing the
amount available to each individual.

 A human induced decline in the quantity or quality

of a renewable resource leads to worsening supply
induced scarcity.
 2
Demand-
Induced

 Population growth or increasing consumption levels

decrease the amount of limited natural resources
available to each individual.

 Demand-induced scarcities are caused by the

effects of population growth, which reduces a
resource's per capita availability by dividing it
among more and more people.
 3
Structural
Scarcity

 It is often caused by a severe imbalance in the

distribution of wealth and power that results in some
groups in a society getting disproportionately large
slices of the resource pie, while others get slices
that are too small to sustain their livelihoods.

 Such unequal distribution or structural scarcity is a

key factor in virtually every case where scarcity
contributes to conflict.

 Often the imbalance is deeply rooted in institutions

and class and ethnic relations inherited from the
colonial period.
 4
Material
Scarcity

This reflects a physical rarity of a thing or product.

 5
Contrived
scarcity

 Is a reflection of a systemic effort to make a thing

scarcer in the mind of the buyer (eg., diamond
industry, loans industry and qualifications
industries).

 On the surface, these are easily described by any

set of actions that place artificial barriers to access
for something that is desired.
 Causes of Resource
Scarcity

 Environmental scarcity is caused by the degradation and depletion of renewable resources (e.g. a
specific tract of cropland), the increased demand for these resources, and/or their unequal
distribution.

 Population growth and increased per capita resource consumption can cause depletion and
degradation, which can in turn produce a decrease in total resource supply or, in other words, a
decrease in the size of the total resource pie‟.

 A shortage occurs when more people want to buy a good at the current market price than what is
available.
 There are three main reasons why a shortage can occur:

Increase in demand (outward shift in

demand curve)

2 3

 Decrease in supply  Demand-induced scarcity:

(inward shift in supply Population growth or increasing
curve). Resource consumption levels, and the
scarcity refers are also decrease amount of limited
caused by the declining natural resources available to
each individual.
availability of renewable
 Increased consumption is also a
natural resources such
cause of demand induced
as freshwater or soil; scarcity, whether as a result of
and higher demand in local markets
or from distant markets.
  Demand-induced – High demand for resource;
Other Causes of Scarcity
Includes:  Supply-induced – supply of resource running out;

 Structural scarcity – mismanagement and inequality;

 No effective substitutes
Demand-Induced Scarcity

03
Demand induced scarcity could occur due to:
E
E R
 Growth inH population;
 Growth TSin real GDP and incomes enabling
E N
T
people to consume more resources than
N
O
before; and
 Changes in preference, e.g. growth in
demand for mobile phones, places
greater demand on certain metals, like
cobalt and nickel used in the production
of lithium batteries.
Supply-Induced Scarcity
Supply induced scarcity can also be due to:

 Bad weather/crop failure: A localized

scarcity can occur if there are particular
problems.
03
For example,E a fungal disease could
R like olive trees, causing a
decimate a Ecrop
H
shortage Sof olives.
T
N
TE
 Degradation of supply. Another form of
N
O
scarcity is when the resource is polluted
making it unfit for consumption.

For example, a nuclear power disaster

causes radiation which makes drinking
water and farmland unusable in the
surrounding area.
Structural Scarcity
 This occurs when the problem is one
of distribution.
03
E
 There is abundant water in the world,
E R
but in certain
H areas, there may be a
TS
shortage
N of supply due to lack of
TE
access. A country with great inequality
N
Omay cause scarcity for some.

 For example, resources may be

owned by a small percentage of the
population and the poor may be
unable to afford to buy the water
supply.
Structural Scarcity
 Often scarcity is caused by a
combination of demand and supply
03 A rise in demand, e.g.
induced effects.
due to risingE population causes
ER and population migration
overcrowding
H
to otherS fragile ecological areas.
T
E N
T increased farming and use of
 The
N
O
these fragile areas can lead to
resource degradation causing a further
fall in the supply of viable land.

 This creates a negative feedback loop

with scarcity causing more strain on
the limited resources and therefore
more pressure to cause more scarcity.
 Scarcity

Scarcity of:

 Land
 Labor
 Capital
 Entrepreneurship
 Factors of Production

Land

 All natural resources that are used to produce goods and services.

 In economics, land refers to the “gifts of nature,” or natural resources not created
by humans. Economists tend to think of land as being fixed, or in limited supply. 

 Because the supply of a productive factor like land is relatively fixed, the problem of scarcity is
likely to become worse as population grows in the future.
 Factors of Production

Capital

 Any human-made resource that is used to create other goods and services.

 Another factor of production is capital–the tools, equipment, machinery, and factories used
in the production of goods and services.

 Such items also are called capital goods to distinguish them from financial capital, the
money used to buy the tools and equipment used in production. 
 Factors of Production

Labor

 Any effort a person devotes to a task for which that person is paid.
 Unskilled, Semi-skilled, Skilled, Professional.
 People with all their efforts, abilities, and skills.
 Factors of Production

Entrepreneurship

 A person who starts a business and takes the risks by deciding how to utilize the other three factors of
production.

 Some people are special because they are the innovators responsible for much of the change in our
economy.

 A risk-taker in search of profits who does something new with existing resources. 

 They provide the initiative that combines the resources of land, labor, and capital into new products.
 Factors of Production
Figure 1.2


The basic economic problem is
how to allocate scarce resources
among alternate uses.

Economies need to choose what we

produce, who we produce for (allocation),
and how to produce it (using the economic
systems – markets).
 The Basic Economic Problem

01 02 03 04
What should an econ- How do we provide Who decides what
omy produce? Who do we produce
goods & services? we produce?
for?
The Basic Economic Problem
Unlimited Limited
Needs and Problem of Scarcity
Resources
Wants

Four Economics Questions:

1. What should an economy produce?

2. Who do we produce for?
3. How do we provide goods & services?
4. Who decides what we produce?
 The Basic Economic Problem

01
What should an econ-
• Do we produce necessities or luxury goods?
omy produce?
• Do we produce one type of car or many types of car?
• Do we produce in the short run (consumer goods) or the
long run (capital goods)?
• Is there a point to some goods, like cigarettes or PhDs?
• Is there a use for smaller niche goods and unhealthy mass
market goods?
 The Basic Economic Problem

02
• Who gets the better cars and who gets the cheap cars?
Who do we produce
for?
• Does anyone want an electric car?
• How do we allocate university places?
• What’s the point in new housing if few can buy it?
 The Basic Economic Problem

03

How do we provide
• What do we believe in – cheap goods or quality goods?
goods & services? • Do we use machines or people to make goods?
• Do we recycle?
• How much damage should we do to the environment?
(Yes, it’s not possible to keep the environment damage
free!)
 The Basic Economic Problem

04
• The government?
Who decides what
• Markets?
we produce? • The workers?
• Consumers?
• Voting?
• Being self-sufficient?
 Scarcity forces people to
make choices. To make sure
we get the best out of our
goods/services, we use
rankings (priorities) to give us
the best happiness from the
goods/services.
Problems of scarcity/choice
We call these choices
trade-offs (a balance
achieved between two
desirable but
incompatible outcomes)

This not only works for

Do we go and see a
people, but also businesses
movie or go bowling?
and governments.
 SCARCITY

SCARCITY= Wants >Availability of Resources

Need and Wants
NEEDS

 Something that, if  This includes air, food,  Things that you

you do not have it for water, but also some must have in
a long period of time, basic amenities like order to survive.
you may die. entertainment and
love.
WANTS

 Something that  This includes  Wants are a step

is non- cinema tickets, ahead of needs
essential for speedboats, and are largely
dependent on the
life Television and
needs of humans
others. themselves.
 WANTS

 It is human nature to have many goods in life. There would be an endless

list of such wishes. Let us call these wishes as ‘desires’.

 One may desire a good house, a car, a computer, good food, decent
clothes and so on.
 WANTS

How can one get all of these?

 WANTS
 One may have these things if he/she has money. If one does not have enough money,
then only one or two of these or none of these could be purchased.

 Which of our desires are to be fulfilled depends upon our capacity to pay or
purchasing power.

 That is why not all desires can be met as we need money to satisfy them.

 The desires which are backed by money and willingness to purchase may be called
wants.

 A beggar may desire to have a car but this desire can not be called a want as it is not
backed by adequate money.

 However, if a rich man desires to have a car and is willing to purchase it, the desire
can be turned into a want.
WANTS
How Do Wants and Grow
How Do Wants and Grow
Wants are a part of our living. They
arise with the birth of man. Man in
ancient times was satisfied while
living in forests, drinking water from
the streams, plucking fruits from
trees or eating animal flesh to satisfy
hunger.
As regards clothing, man has moved
from unstitched animal skins and
tree leaves to a variety of clothes. In
order to live better, man discovered
and Your
invented
Text new
Hereitems of clothing.
As knowledge, taste and fashion are
 Simple PowerPoint
increasing, new and better products
in clothing are emerging.
With the discovery of fire man started cooking
food. This led to the discovery of new food
items. Man’s taste grew and expanded. A
large variety of food stuffs came into
existence. Today you can find different
varieties of tastes, colors and shapes in food
items.
In a similar fashion, need for housing has also
undergone a tremendous change. Man has
moved from caves to huts made of straw and
pucca houses made of bricks. Now a days,
houses madeHere
Your Text of wood, pucca houses,
bungalows and palaces with fancy doors,
 Simple PowerPoint
windows and all sorts of decorative paints and
fixtures are in use.
 Over a period of time, these wants have grown. How did it happen?

 There are some other wants which make our life easy and comfortable. These are
called comforts.

 Examples of comforts may be coolers, scooter etc. Some goods give us pleasure
but they are very costly.

 For example, luxurious cars, diamond jewellery etc. such good are called luxuries.
Satisfaction of Wants

Do all our wants get satisfied?

 Satisfaction of Wants

 No, As soon as one want is satisfied another takes its place; our wants increase
because we desire to live a better and comfortable life.

 As new goods and service are developed, we want them. Wants can be satisfied by
goods and services.

 Goods and services can be produced with the help of resources. Land, labor, capital and
entrepreneurship are called resources which help in the production of goods and
services. Wants are unlimited but the resources to satisfy them are scarce. As soon as
one want is satisfied, another takes its place.

 Some of these wants can be satisfied by man with his limited income while for others he
may not be able to do so. It is, therefore, not possible to fulfill all our wants though a
single want is satiable.
Wants and Needs Drive the Economy

Businesses make money by

satisfying the wants and needs of
consumers and other businesses.

In this way, wants and needs drive

the economy.
An Abundance of Wants and Needs

Wants and needs determine what

products and services businesses
provide.
Characteristics of Wants
 1. Wants are unlimited
 Famous economist Marshall has rightly said that human wants are countless in number
and are varied in kind As soon as one want is satisfied another want takes its place.
 This endless circle of wants continues through out life.

 For example, a person who has never used a fan would wish to have a fan. When this
want is satisfied, he would wish to get an air cooler and a scooter.

 Once these wants are satisfied, then he would wish to have an air conditioner, a car and
so on. Thus, we see wants never come to an end.

 When this want is satisfied, he would wish to get an air cooler and a
scooter.

 Once these wants are satisfied, then he would wish to have an air
conditioner, a car and so on. Thus, we see wants never come to an end.
 2. A single want is satiable

 Each want taken separately can be satisfied.

 It has rightly been said that there is a limit to each particular want.

 For example, if a man is thirsty he can satisfy his thirst by

taking one, two or three glasses of water and after that he
does not want water at that point of time.
 3. Some Wants arise again and again

 Most wants recur. If they are satisfied once, they arise again after a certain
period.
 We eat food and hunger is satisfied but after a few hours, we again feel
hungry and we have to satisfy our hunger again with food.

 Therefore, hunger, thirst etc. are such wants which occur again and
again.
 4. Varying Nature of Wants

 Wants vary with time, place and person.

 They are also influenced by many factors like income, customs, fashion,
advertisement etc.

 For example, we want medicines only when we are sick.

 Similarly, people have started using things like T.V. Sets, mobile
phones, car and many other luxury goods due to increase in their
income and change in fashion.

 Thus, wants have been found to vary and to multiply with the
economic development of a country
 5. Presents wants are more important than future wants

 Present wants are more important. A person uses most of his limited resources
for the satisfaction of present wants. He does not worry much about his future
wants because future is uncertain and less urgent.

 For example, providing for the education of children in the present is

more important than providing for old age security in future.
 6. Wants change and expand with development

 A simple example to show how wants are changing is the telephone.

 Earlier, in the rural areas there were not many telephones, but today telephone has
become a necessity for everybody for keeping in touch with their near and dear
ones.

 People using telephone earlier, are now using mobile phones.

 They want more and more facilities in their mobile phones such as,
Camera, Internet and so on.
Satisfying Wants and Needs

 Businesses provide goods and services

to satisfy the wants and needs of
businesses and consumers.
 How Resources Satisfy
Wants
• As stated earlier wants are satisfied with the use of goods and services.
• To produce these goods and services, resources are used.
• With ever growing wants, we have been making greater use of resources.
• Resource may be natural or man-made. All resources can be classified into land, labor, capital and
entrepreneurship.
• For example, for the production of wheat, we use land, labor, tractor pump set etc. (capital). Farmer
organizes all these factors to produce wheat. He also uses seeds, manure and fertilizers in this process.
• Thus, production of wheat involves the use of resources. Similarly, production of all other goods & services
also involves the use of resources.