- Scarcity
- Scarcity means that human wants for goods, services and resources exceed what is available to satisfy them.
- Shortage
- A shortage exists when, at the going price, the quantity of a good demanded exceeds the quantity supplied.
Economic goods and free goods
Can you name the two kinds of good, one scarce and one not?
An economic good is one that is scarce, because making more of it uses resources that could have produced something else, so it has an opportunity cost.
Can you think of an example?
A school laptop is an economic good. The metal in it, the factory time and the labour that assembled it could all have gone into making something else instead.
A free good is one that is not scarce, because there is enough to meet every want at a zero price, so using more of it has no opportunity cost.
Can you think of an example?
The sunlight on a beach is a free good. One person sunbathing leaves no less for anyone else, and nobody has to give anything up to provide it.
Resources are limited and wants are not
Labour, tools, land and raw materials are needed to produce the goods and services people want, and they exist in limited supply. The scarcest resource of all is time: everyone, rich or poor, has the same 24 hours in a day to earn an income, to rest and to sleep. Human wants, meanwhile, seem to be virtually unlimited, so not every want can be met.
Check yourself
Three of these are scarce in the economic sense. Which one is a free good?
Scarcity forces a choice on every household, firm and government
Every society, at every level, must decide how to use its resources. A family chooses between a new car and a holiday. A council chooses between more policing and better schools. A government chooses between defence and protecting the environment. In most cases the budget will not stretch to everything, so choosing one use means going without another. Growth does not end this: an economy that can produce more of everything still faces scarcity, just at a different level.
Can you think of two things a sixth-former has to choose between this week?
A sixth-former has £30 left this week and a free Saturday. The money can buy a concert ticket or go towards new trainers; the Saturday can go on a paid shift or on revision. She cannot have both of either pair. A millionaire faces the same Saturday: more money widens what can be bought, and still adds no hours to the day.
Scarcity never goes away, while a shortage can be priced out
A shortage belongs to one market at one price: buyers want more than sellers offer, and as the price rises towards equilibrium the shortage disappears. Scarcity does not disappear when a price changes, because it comes from the gap between wants and resources rather than from the price. A shop can end its shortage of games consoles by charging more; nobody can end the scarcity of time.
Check yourself
Which of these describes the economic problem of scarcity?
If something is scarce, doesn't that just mean it is rare?
Not in economics. Bread, water and seats on a bus are everywhere, yet they are scarce, because making more of them uses labour and land that could have gone elsewhere. Scarcity is about what it costs to produce more, not about how hard a thing is to find in the shops.
When asked why a choice has to be made, give both halves: resources are limited and wants are unlimited. Then name the choice being forced and who faces it, a household, a firm or a government. Writing "because of scarcity" with no resource and no decision attached usually earns one mark of two.
Check yourself
Tap water reaches almost every home in the UK. Is it scarce in the economic sense?
Exam question
Explain why even a very rich person faces the problem of scarcity. [2]
Their wants are still greater than the resources open to them, and some resources are limited for everyone, above all time. So they must still choose how to use their hours, and choosing one use means giving up another.
One mark for limited resources against unlimited wants, and one for naming a resource that money cannot expand, such as time, with the choice it forces. Saying only that the rich have more money misses the point of the question.
Scarcity means human wants exceed the resources available to satisfy them. Resources, time above all, are limited while wants seem unlimited, so every person, business and government has to choose, and choosing one use means going without another. Scarcity is not the same as a shortage: a shortage is one market at one price and a rise in price clears it, while scarcity remains even as economies grow.