Scarcity is a condition where limited resources cannot meet our unlimited needs and wants. Economic activity has produced various goods and services. But that is not enough. We want them more and more varied. That is why economists refer to our needs, and wants are infinite.
Dissatisfaction brings new innovations
Needs and desires continue to grow. We are never satisfied.
A computer, for example, has been present for a long time. But, it is slow and has many shortcomings, including having to require ample space for mainframes. It also can’t store a lot of data or do some work.
Of course, we want better than that. We need a computer that can process faster and do more tasks. Then came the personal computer.
Doing work at the desk is boring. We want a computer that is mobile and can be carried anywhere. It gives us greater flexibility in doing tasks. Then came the laptop.
So, dissatisfaction with existing products and services encourage innovation. It helps businesses to be more creative in developing new products. Through innovation, they produce a variety of products that make our lives more convenient and more comfortable.
Scarcity is a relative concept
Scarcity is a fundamental human problem, and it becomes the foundation of economics.
Scarcity is a relative rather than an absolute concept. To explain, I will take two examples.
First is water. For some countries in Africa, water is scarce. Their geographic area experiencing droughts and shorter period of rainfall. But, in tropical rain areas like Indonesia. Water is abundant, and you can find it anywhere.
Second is money and time. Money and time are scarce resources. Unemployed people may have lots of free time. But, they have trouble paying the rent because they do not earn income.
In contrast, you might be rich because you are the president director. Still, you have less time for your family and more to do office work.
Indeed, some people have a lot of time or money. But, they are a bit of the world population.
Scarcity requires choice and raises costs
When resources are scarce, we must prioritize their allocation. You have to choose which products and services we need to buy. Likewise, you also need to think about how to use money efficiently.
Making the best use of scarce resources is the focus of most economists and us.
Every choice has consequences or costs. And, in economics, we call these opportunity costs. It represents the next best alternative we sacrifice when choosing something.
Say, you have two choices for allocating time: work or leisure. When you choose to work, leisure represents the opportunity cost you sacrifice. Conversely, when you choose the free time, work is an opportunity cost (and you sacrifice an opportunity to get a salary).
Scarcity makes goods and services have a market value
When something is scarce, it will have market value if there is demand. Luxury goods have high value because, for one thing, they are rare. You can see how expensive a Mona Lisa painting by Leonardo Da Vinci is? That reaches the US$100 million in 1962 or $650 million if we convert to 2018.
In the supply-demand model, if the supply of goods or services decreases, their market prices will rise, ceteris paribus.
In contrast, a more abundant supply of a product will have a lower market value. That’s because inventory can quickly meet demand from consumers.
