Scarcity

What is Scarcity?

Society's material wants are unlimited and unsatiable. However, there is a limited amount of economic resources. This creates scarcity, where the demand for goods and services exceeds the supply. Economists view things through a special economic perspective, and as part of this, they view the world through the lens of scarcity.

Key Concepts

  • economic perspective
    • The economic way of thinking. One element is viewing hte world through the lens of scarcity.
  • scarcity
    • The demand for goods and services exceeds the supply.
  • economizing problem
    • The problem of having to decide how to make the best use of limited resources to satisfy virtually unlimited wants.
  • insatiable
    • virtually unlimited and therefore incapable of complete satisfaction

Diagram


external image scarcity.jpg
There diagram shows how there is an infinite number of things that people want, but due to a limited amount of resources, we experience the problem of scarcity.[1]

Results of Scarcity


As a result of scarcity, we are forced to make many important decisions on a regular basis. Some of the questions we are forced to consider are explained in the diagram:
  • What to produce?
  • How to produce?
  • For whom to produce?

One of the most important problems that scarcity creates is the economizing problem. That is the problem of having to decide how to make the best use of limited resources to satisfy virtually unlimited wants.

Scarcity also forced us to sacrifice certain goods and services in exchange for other goods and services. This brings us to the topic of opportunity costs.

Opportunity Cost


What is Opportunity Cost?


Opportunity costs are when in order to obtain more of one thing, society must give up the chance to get the next best thing. The sacrifice is the opportunity cost of the choice.

Key Concepts


  • opportunity cost
    • To obtain more of one thing, society forgoes the opportunity of getting the next best thing. That sacrifice is the opportunity cost of the choice.
  • increasing opportunity cost
    • To produce more of one good requires giving up an increasing amount of another good.
  • constant opportunity cost
    • Each additional unit of one good produced requires giving up the same number of units of another good.

Diagram


Ppf2_small.png
As can be seen in the diagram, the opportunity cost between 5 and 6 Computers is 1 Food unit, and the Opportunity Cost between 9 and 10 Computers is 3 Food units. This represents an increasing opportunity cost.[2]

Results of Opportunity Cost


Because we have opportunity costs, we are unable to produce an unlimited amount of goods. For each additional good we produce, we must sacrifice producing a different good. One common way to illustrate both opportunity costs and scarcity is with a Production Possibilities Frontier.

Article


Link to Article

The article discusses how "food scarcity looms large worldwide". Food scarcity means that the demand for food exceeds the limited available resources. If "only 94 per cent of the total demand of food grains will come to the food markets", we are dealing with values below equilibrium. This means that there is a shortage due to the quantity demanded exceeding the quantity supplied. This shortage is the "6.0 per cent deficit of food grains mentioned in the article. This decrease in supply and increase in demand has also caused the equilibrium price to increase, which is the "4.2 per cent increase in the price of food".

In order to try and solve the food shortage problem, these countries "will have to spend 12 per cent more for the import of food grains". This means that this 12% will not be able to be used to secure other necessary resources, as it will be used to get food. The article also discusses how if the price of one good increases, the price of certain related goods that depend on the first one will also increase. This is important, as if the price of fossil fuels increases, the price of feritliser increases.
It is also noted how some families are being forced to spend up to 70% of their income on food. As we have seen, this will greatly impact their ability to spend money on other goods, which will greatly decrease the demand for those other goods, hurting the economy.
The articles mentions the idea of the government providing incentives for non-government sectors to import food grains. These incentives would increase the marginal benefits experienced by these groups, hopefully causing them to exceed the marginal costs, which would cause these groups to help import the food grains.

  1. ^ http://www.investopedia.com/terms/s/scarcity.asp
  2. ^ http://econ651spring2008.wikispaces.com/Opportunity+costs+including+implicit+costs+and+explicit+costs