What is Scarcity?

Scarcity refers to the shortage of a resource brought about by higher demand or other structural changes in the economy¹.

What causes scarcity and what is its impact?

In most cases, scarcity is caused by the overuse of a resource or the surge in demand. For example, during a pandemic, there could be a scarcity of medical kits brought about by additional demand. Another example could be excessive industrialization that leads to rapid deforestation and scarcity of natural resources.

Scarcity can be absolute or relative. Absolute scarcity means that the resource is naturally limited and not in relation to demand¹. For example, Rhodium, an expensive metal, can be considered an example of absolute scarcity². A case of relative scarcity – when a resource is naturally limited in supply¹ – may arise when there isn’t enough crude oil available for industrial growth.

Scarcity makes a resource more expensive and may lead to people seeking alternate options. It can also lead to drastic economic impacts. For example, a scarcity of jobs could lead to high unemployment. Low levels of natural resources could hamper economic growth.

Example

Kobeland is dependent on coal to meet its energy requirements. Over the last year, there has been a reduction in coal supply, leading to a scarcity of energy. There have also been job cuts in this industry due to environmental concerns. To tackle this problem, the government created a fund to finance solar and wind energy projects. Not only would this improve the energy supply, but it could also generate employment opportunities.

Sources

1. Scarcity. Investopedia.
2. What is Rhodium and Why is it So Valuable? New Age Metals.

Please note that this article is for educational and informational purposes only and is believed to be accurate and reliable as of posting date but may be subject to change. The example above is for illustrative purposes only.

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