Concept of Scarcity and Its Importance To Economics

Last updated on August 6th, 2023 at 08:22 am

What is scarcity?

Scarcity is the inability of human beings to provide themselves with all the things they want or desire at a specific time.

It is one of the most important elements in economics. It forms the core of the economic problems. It creates a “problem” and the ability of humans to effectively manage the short-term or long-term crisis scarcity may bring.

Why do people manage a few resources at their disposal? Because of insufficient resources. There will not be a need to manage if resources are sufficiently available, but this could also lead to waste.

This article outlines the importance of scarcity to economic principles and why it’s very important to solve some salient economic problems.

Example of scarcity

The invasion of Ukraine by Russia on December 20, 2020, showed that Ukraine suffered personnel scarcity to defend its territory against the invasion of its brother (Russia).

Even there are many political undertones and clashes of interest between the invader (Russia) and the United States of America.

What does Ukraine do to address the issue of personnel scarcity?

The country launched global recruitment of personnel who are ready to join the Ukrainian military to push back the Russian soldiers from its territory.

If there wasn’t scarcity, Ukraine wouldn’t need more hands, that’s one of the basics of economics.

In Nigeria, where there is a scarcity of Petroleum Motor Spirit (PMS) popularly called petrol, hundreds of motorists who were fortunate to purchase a few litres resorted to “rationing”.

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They are selective about where they take their vehicle to. They had to manage the available fuel at their disposal.

Its Relevance to Economic Concept

In the economic concept, the relevance of scarcity is germane in bringing the best out of resource managers.

There would be no economic problems if resources were not scarce as earlier pointed out, no wonder definitions like, “economics is the study of scarcity” as pointed out in the list of definitions of economics in one of our articles.

Importance of Scarcity to Economics

1) Scarcity enables us to economise the available resources

2) It enables everyone to choose between competing alternatives

3) It enables us to minimise waste

4) Scarcity also booster our managerial skill

5) It fosters spending discipline

Hence, we have to economise.

Above all, scarcity brings about economic problems, which we shall discuss in our next article.

Shortage vs Scarcity

Closely related to scarcity is a shortage. But the shortage is temporary and could be resolved by resolving certain factors that cause higher demand than supply.

Simply put, a shortage occurs when the demand for a good or service is more than its supply.

Example of shortage

In Canada, there are more available vacancies than the labour force to get works done. No wonder, the country increases the number of immigrants every year to solve the problem of labour shortage.

Sometimes in September 2021, the United Kingdom experience shortage of fuel because there was a shortage of tanker driver to deliver the product to stations.

“We are aware that some petrol stations have had to temporarily close in response to localised spikes in demand

“This is not in response to a national shortage; there is plenty of fuel at refineries and terminals,” Reuters quoted a spokesperson for the UK’s Department for Business, Energy and Industrial Strategy (BEIS.

Reauters

In terms of good, a shortage could arise in a mall, say for chocolate, if drivers are unable to deliver on time or due to circumstances beyond their control

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Difference Between Shortage and Scarcity

Scarcity is a natural limitation on supply while shortage happens when demand exceeds supply as we saw in the case of the UK in 2021 (tanker driver shortage)

The shortage is temporary. It is resolvable. It can be adjusted. Some seller adjusts price of their goods until demand matches supply.

Scarcity is a natural resource that cannot be replenished while shortage is a market condition of a particular good at a particular price.

Causes of Shortage

  1. Government intervention
  2. Shortage is caused by a low supply compared to the higher demand of goods and services in the market.
  3. Increase in demand
  4. Decrease in supply
  5. The market is not in equilibrium when there is a shortage. Equilibrium occurs when the quantity supplied equals to quantity demanded

Why is scarcity an important concept in economics?

It enables people to choose between the available resources. Economics is about making choices. Without scarcity, there would be no economic problem.

As such, scarcity gives room to find solutions to minimise crisis

Will scarcity exist every time?

Our wants are insatiable. Human beings will always want more. More money even when he’s a billionaire. Man will always want the latest exotic car even when they have Rose Royce.

As such, scarcity will always exist in day to day activities of mankind.

Can the effect of scarcity be reduced?

Yes, some of the effective ways to reduce the effect of scarcity are by 1) eliminating waste, 2) ensuring minimal use of the scarce resources.

What is an example of a shortage?

Labour shortage in Canada, according to skilledworker.com, the number of job vacancies in Canada reached 912,600 in the third quarter of 2021.

Why is there a shortage?

There is a shortage when supply is lower than demand at a specific time due to some factors

Recap:

The gap between limited resources and insatiable wants is known as scarcity

There can never be enough to satisfy human wants because they always want more, as such, it involves making a sacrifice in order to satisfy more pressing wants which relate to the scale of preference.

A closely related term to scarcity is a shortage. But there are distinctions between the two economic terms.

A situation whereby supply in the market is not sufficient to meet the quantity demanded at a particular point in time is known as a shortage.

Author

  • Opeyemi Quadri

    Ope is a finance writer and researcher with 10+ years of experience in content creation. His interests cut across real estate investment, foreign exchange, government policies and politics. He has a knack for breaking down complex financial concepts in a way that is easy to understand. Ope is available on Twitter @OpeQuadri.

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