Scarcity In Economics

Scarcity In Economics

Scarcity, in economics the lack of a commodity in relation to the demand for it. It does not apply simply to goods which are few in number. A unique but obsolete machine tool which is not required even by museums or scrap merchants is not a scarce good in the economic sense. Economists distinguish between 'free goods' such as sunshine, air and water, which are normally available in such abundance that they have no price, and 'economic goods, which are scarce in relation to demand and so bear a price.

Most goods and services are scarce because, at any given time, the supplies of raw materials, machinery, land and labour needed to create them are also scarce. Thus, whatever its political or social forms, every society must decide how best to allocate its productive resources and how the resulting limited supply of goods and services is to be shared out among the community. If all productive resources are fully employed, an increase in the output of one commodity or service can be produced only by having less of another more refrigerators means less steel for cars; more land for factories and roads means less for agriculture; more teachers may mean fewer nurses or social workers; and so on.

In time, by adding to its stock of productive resources, a community can increase its total output of goods and services, but even here the rules of scarcity apply. The limited amount of building materials, land and labour must be allocated between, for example, factories to increase the supply of manufactured goods and universities to increase the supply of scientists and engineers.

These problems are fundamental to rich and poor societies alike, and to every political system from capitalism to communism. Economics is essentially a study of the problems arising from scarcity. If all goods were so abundant that they were free, there would be no economic problem, because the need to decide how best to allocate resources would not arise.

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