Economic Scarcity

Economic scarcity is a concept that paints a picture where the demand for resources is high, and the availability of resources is limited so indicating a gap between limited resources and unlimited wants. Scarcity is also known as paucity, and the opposite is abundance.

It explains the significant difference between demand and supply of goods and services. That is, supply is not on par with the demand. The availability of resources in insufficient amounts makes it costly. Therefore, optimal allocation and use of scarce resources are important to ensure that maximum people can benefit from it.

• Economic scarcity definition explains an important economic term pointing to the gap between limited availability of resources and unlimited needs of the people.
• It points to the scenario where supply is not on par with the demand. The scarcity is also known as paucity, and the opposite is abundance.
• There are primarily three types: supply-induced, demand-induced, and structural.
• Overconsumption of resources, rising demand when supply remains the same, reduced supply due to economic or environmental reasons, government interventions, etc., lead to scarcity.

Economic scarcity can occur due to multiple reasons. The scarcity can be demand-induced, supply-induced, and structural. Demand-induced scarcity happens when the demand for a resource outgrows its supply. Also, it can be due to an increase in population or income, given that the supply remains relatively the same. Supply-induced occurs when the supply declines due to reasons like government restrictions or environmental degradation. Finally, the structural scarcity is due to the uneven distribution of natural resources on earth.

Resources can be natural, manufactured, human, nonhuman, freely available, or priced. For example, in everyday lives, there are freely available environmental resources like the air that are not generally traded on markets and costly resources like petroleum. In all these cases, overconsumption leads to scarcity of resources. Moreover, the scarcity signals for environmental resources can be inadequate since they are not traded on markets. In all these cases, the problem of paucity invites much human involvement, economics, and resource management. Also, if there were no issue of paucity, there was not much left for economists to study.

Difficult economic circumstances with fewer financial resources can make people experience economic scarcity because they lack adequate finances to satisfy their needs and wants. Some people do not earn enough to sustain a reasonable standard of living for themselves and their dependents. This financial hardship and scarcity can induce a scarcity mindset and have profound psychological consequences, affecting their work-life and organizational functioning.

#1 - Water scarcity: Agricultural economic water scarcity highlights serious questions about humanity's survival and growth in the future. Water scarcity can be due to a lack of planning, investment, infrastructure, and climate change. Food and revenue are provided through agriculture to the populace. Demand for food is rising, which raises the need for irrigation water. Agriculture would likely need irrigation in current rain-fed croplands to fulfill the rising food demand without extending cultivated areas. Sustainable irrigation of croplands with low water availability may feed millions more people while preventing the blue water crisis from worsening.

#2 - Executive's time: Executive's time, an element of a company's limited resources, is a scarce asset. The allocation of that time for the president or CEO and first-level managers determines the outcome, success or failure. Applying economics to these issues contributes to the effective use of resources.

#3 - Oil scarcity: Oil is a widely consumed and traded commodity worldwide. It forms a key element in the transportation and production of other goods. The sustained rise in oil prices indicates its scarcity in the world oil markets. A return to abundance is unlikely soon due to the anticipated strong rise in oil demand in developing and developed economies and the decline in oil production growth.

• Overconsumption of renewable natural resources.
• Growing demand and inadequate supply and corresponding economic shortage.
• Decline in supply due to economic or environmental reasons.
• Unequal distribution of natural resources creates a scarcity of specific resources in certain places.
• Government intervention. For example, inefficient policies from the government side can induce scarcity.
• A sudden increase in the demand for a product or service leads to scarcity. For example, scarcity of healthcare services, beds, masks, and oxygen cylinders occurred amid Covid 19 pandemic.

This has been a Guide to What is Economic Scarcity. We explain its definition, examples, causes, water scarcity, and define economic shortage. You may learn more from the following articles -

• Demand-Side Economics
• Economic Incentives