Scarcity is a term for resources, goods and experiences that are limited in supply. This is a basic dimension of economics and life in general whereby it is costly, difficult or impossible to produce more of what people want such that limitless wants can't be satisfied. The following are examples of things that are scarce.
Beds / Equipment / Doctors in a Hospital
Capacity of a Tourist Attraction
Capacity of a University Class
Electricity Capacity of a City
Fresh Water at a Place
Houses on a Street
Police Officers in a City
Rooms in a Hotel
Seats on an Aircraft
Seats on an Amusement Attraction
Space in a Nightclub
Space on a Beach
Space on a Highway
Takeoff / Landing Capacity of an Airport
Talent / Labor
Time in a Day
Tuna for Sushi
Video Game Consoles
Wifi Capacity at a Place
TradeoffsScarcity forces economic actors to make tradeoffs. In a market, prices represent the opportunity cost of each good such that buying more of one thing may mean less of another.
Time & PlaceScarcity occurs at a time and place. For example, a place may experience water scarcity. There is about 1.386 billion km³ of water on Planet Earth such that water isn't particularly scarce overall. However, the challenges of getting fresh water to a particular place often causes water scarcity. If infrastructure were to be built to efficiently desalinate and transport water to a place, water scarcity would decrease at that place in the long term.
Structural ScarcityStructural scarcity denotes a good or resource that is relatively abundant in one place but scarce in another due to structural problems such as political obstacles or a lack of infrastructure. For example, remote communities in Northern Canada that have very high prices for basic goods such as breakfast cereal due to a lack of transportation infrastructure, remoteness and severe climate and weather.
Demand ScarcityScarcity is always viewed with respect to demand. If people don't want something, it isn't scarce. Likewise, if demand for something increases, this can increase scarcity.
Supply ScarcityScarcity can suddenly increase due to supply disruptions. For example, a government that forces businesses or ports to close down would cause supply of goods to decrease. Likewise, scarcity can decrease due to increased supply.
Supply LifecycleIn a free market, prices generally increase with increased scarcity. These higher prices typically attract new supply such that scarcity decreases in the long term as suppliers are able to increase their output. For example, if there is a sudden shortage of coffee, prices increase and farmers around the world may invest in greater capacity. It may take many years for this capacity to reach the market. When additional capacity does reach the market, scarcity decreases and prices fall. This may cause suppliers to reduce output as investing in capacity becomes less appealing. As such, scarcity may begin to increase. This creates a repeating cycle of high scarcity → price increases → increase in supply → low scarcity → price declines → decrease in supply → high scarcity.
Absolute ScarcityAbsolute scarcity, or perfectly inelastic supply, are terms for a good or resource that will not increase in supply no matter how high prices go. For example, Leonardo da Vinci produced less than 25 major works. This will never change no matter how high demand for these works may go.
Artificial ScarcityArtificial scarcity is a situation where it is possible to produce more at a similar or lower cost but supply is artificially constrained. For example, a telecom monopoly that constrains bandwidth because they own media companies and want to discourage people from using competition such as streaming media.
MalthusianismMalthusianism was a popular 19th century theory that population growth is exponential while growth of food production is linear. This would obviously be unsustainable and lead to tragedy known as a Malthusian catastrophe. This theory was wrong as production gains of the 20th and 21st century are clearly exponential and population growth has slowed. Malthusianism has been further criticized as misanthropic whereby it views populations and people in an entirely negative light.
Scarcity MindsetScarcity mindset is a way of thinking that views supply as fixed. This has a vast impact on how people think as this makes life a win-lose competition whereby getting what you need comes at a cost to someone else. In situations where supply can be increased, scarcity mindset is essentially a bias. For example, an employee who feels bad when peers do well as they feel that rewards and recognition are limited in supply.
Abundance MindsetAbundance mindset is the view that there is enough for everyone or that talent, invention, diligence and work can produce more supply of what people need. For example, an employee who feels that if everyone in a firm has unusually high performance then the rewards for everyone in the firm will also be unusually high. Generally speaking, abundance mindset produces positive behavior such as cooperation, productivity and sympathy for others.
Myth of SuperabundanceAbundance mindset can go too far whereby it becomes a type of denial of problems. For example, an individual who dismisses overfishing of an endangered species with a glittering generality such as "there are lots of fish in the ocean."
Post-scarcityPost-scarcity is the theory that technology will eventually create such abundance of goods that virtually unlimited needs can be met for little or no cost. In this context, unreasonable wants such as owning the entire universe will still be scarce but a society might produce a great abundance for a very large population. For example, self-replicating probes that produce trillions of themselves every nanosecond in space that manufacture Earth-sized space stations every few minutes at an ever-accelerating pace. In this context, production increases may vastly exceed population growth such that only artificial scarcity will exist. For example, all real food may be free but virtual food in a particular video game may still be scarce.
Scarcity vs ShortageMost goods are scarce whereby a good has a limited supply in a given time and place. Shortages are a different concept whereby demand can't be met and prices may surge out of control. Scarcity doesn't not imply a shortage. For example, if a city has 1,000 barbers who can each provide 4 haircuts a day, then haircuts are a scarce resource with a current capacity of 4,000 a day. This doesn't mean that there is a shortage of barber services. It is quite common to confuse scarcity with shortage whereby you believe that haircuts are only scare if there are long lines at barber shops or people who can't get a haircut at all.
This is the complete list of articles we have written about macroeconomics.
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