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Scarcity as the Fundamental Issue in Economics

Fundamental Issue in Economics

What ideas and images does the word “scarcity” bring in your mind? Overall, when we are talking about scarcity, we denote the lack of some resources and the unavailability of specific goods or services. When analyzing the notion of “scarcity” from the perspective of society and social institutions, we may talk about scarcity of natural or economic resources among others. In case there is a scarcity of something, people need to mobilize their efforts and admit their personal responsibilities for the potential societal changes and improvements.

The Economic Sphere and Its Law of Scarcity

The Law of Scarcity has its roots in people’s nature whereby they are never fully satisfied with what they have and always crave for more. All the wants, wishes, and desires are infinite. Sometimes one need or demand cannot be met unless the more basic ones were fully satisfied. On the other hand, some of the desires cannot be fulfilled because of the inadequate amount of resources needed for that. Therefore, this endless crave for acquiring something new brings about scarcity.

Types of Scarcity

  • Economic
  • A Proper balance should strike between demand and supply. When the levels of supply are decreasing, then there is a scarcity of resources as the products cannot be in equal reach among consumers.
  • Physical
  • The most evident example is the scarcity of natural resources, such as land, water, oil, coal, and others. When some sources are no longer available, they become scarce and hard to get.
  • Geopolitical
  • This type of scarcity deals with geopolitics, which refers to establishing and regulating relations between geopolitical environment and political processes. There are specific groups that control the supply of some resources to regulate economic and political sphere.
  • Scarcity=Resource Quality
  • This type has nothing to do with the rest constituents of this classification, such as economy, supply or demand. Here it is all about the scarcity of biodiversity, clean water, forests, and so on.

Three Core Economic Problems

  • What to Produce
  • It is important to define what products and services need to be produced and in what amount or quantity. Here it is important to realize that there are no limitless resources. Therefore, it is fundamentally important to distribute all resources wisely before producing specific goods.
  • How to Produce
  • When providing goods and services, it is important to come up with the most suitable technique or method of production. If you wonder why it is so vital, the answer is simple: to economize on the production costs and make sure the production process is sustainable. The two core strategies of production are capital-intensive technique and labor intensive technique.
  • For Whom to Produce
  • The target consumers should be identified before the production of specific products. When defining the target consumers, such issues should be taken into account: age range, level of income, professional sphere, lifestyle, and others.

Overall, scarcity takes place when there is an insufficient amount of resources but a huge demand for them. Scarcity can face any economy regardless of how developed or successful it is.