Understanding Scarcity in Economics

  • 6 min read
  • Mei 06, 2023

In the realm of economics, scarcity denotes the fundamental reality that there is a finite quantity of human and nonhuman resources available. With the best technical knowledge, these resources can be used to produce limited maximum amounts of each economic good. Scarcity is defined by the limited availability of a commodity, which might be in demand in the market or by the commons. It can also refer to an individual’s insufficient resources to purchase commodities. The opposite of scarcity is abundance, and scarcity is crucial in economic theory, as it provides a foundation for defining economics.

For instance, Walras’ definition of social wealth, or economic goods, highlights scarcity. He explains social wealth as encompassing all things, material or immaterial, that are scarce, meaning they are useful to us and available only in limited quantities.

Scarcity in Economic Theory

Economic theory differentiates between absolute and relative scarcity. It underscores that relative scarcity is the defining concept in economics. Current economic theory is primarily derived from the concept of relative scarcity, which posits that goods are scarce due to insufficient resources to produce all the goods people want to consume.

Absolute and Relative Scarcity

Absolute scarcity pertains to the scarcity of resources in general, and it increases as population growth and per-capita consumption draw us closer to the carrying capacity of the biosphere. Meanwhile, relative scarcity is characterized by the discrepancy between multiple, different human requirements and available quantities with alternative uses.

The economic theory treats absolute and relative scarcity as distinct concepts, with relative scarcity serving as the starting point for economics.

Malthus and Inherent Scarcity

Thomas Robert Malthus established the foundational theory that has pervaded discourse on worldwide hunger and famines for nearly two centuries. In his seminal work, An Essay on the Principle of Population (1798), Malthus posited that although increases in food production elevated the welfare of the population, these gains were ephemeral, as population growth would eventually reestablish the initial per capita production rate. 

This phenomenon, whereby humans capitalize on abundance for population expansion rather than enhancing living standards, has been dubbed the Malthusian trap or Malthusian specter. Malthus’s view contends that populations inherently expand until the lower classes endure privation, heightened famine susceptibility, and heightened disease susceptibility—a concept known as the Malthusian catastrophe. Malthus’s writings countered the prevailing 18th-century European perspective that society was advancing and potentially perfectible.

The Malthusian Catastrophe Schema

Malthusianism posits that population growth follows an exponential trajectory, while the growth of the food supply and other resources follows a linear path, consequently diminishing living standards to the point of inciting population decline.

This notion stems from Malthus’s political and economic perspectives, as articulated in his 1798 treatise, An Essay on the Principle of Population. Malthus identified two persistent checks that constantly operate to constrain population growth relative to the available food supply:

  1. Preventive checks, including moral restraints or legislative measures—e.g., individual decisions to practice abstinence or delay marriage until financial stability is achieved, or government-imposed restrictions on marriage or parenting rights for those deemed deficient or unsuitable.
  2. Positive checks, encompass disease, starvation, and war, which precipitate elevated premature death rates—culminating in a Malthusian catastrophe. The adjacent schematic illustrates the abstract juncture at which such an occurrence would transpire concerning the extant population and food supply: when the population meets or surpasses the capacity of the communal supply, positive checks are necessarily implemented to restore equilibrium. However, in actuality, the situation is considerably more intricate due to regional and individual disparities in access to food, water, and other resources. Positive checks are inherently more extreme and involuntary.

Daoud (2010) contends that the robust impetus for reproduction, relative to the modest expansion of food production capacities, rapidly generates a state of shortage and, consequently, hunger. This fundamental correlation between food necessities and food production capabilities constitutes the ultimate restraint on population growth.

Malthusianism implicitly incorporates two types of shortage: the shortage of food requirements and objects directly fulfilling these needs or accessible quantities. Both types are inherently absolute and delineate the economic concepts of scarcity, abundance, and sufficiency as follows:

  • Absolute sufficiency is the state in which human food requirements and available quantities of useful goods are equal.
  • Absolute scarcity is the state in which human food requirements exceed available quantities of useful goods.
  • Absolute abundance is the state in which available quantities of useful goods surpass human food requirements.

Daoud cites Daly (1977), who asserts that absolute scarcity refers to the general shortage of resources or the scarcity of ultimate means. Absolute scarcity intensifies as population growth and per capita consumption approaches the biosphere’s carrying capacity. This notion presumes that all economic substitutions among resources will transpire, mitigating the burden of absolute shortage but neither eliminating it nor preventing its eventual exacerbation.

Robbins and the Concept of Relative Scarcity

Additional Information: An Essay on the Nature and Significance of Economic Science

Lionel Robbins, a distinguished member of the economics department at the London School of Economics, is renowned for his statement, “Humans desire what they cannot obtain.” As a proponent of the free market, Robbins is recognized for his definition of economics, which is presented in his Essay as:

“Economics examines human behavior through the lens of the connection between objectives and limited resources that possess alternative applications.”

To substantiate this definition, Robbins identified four requisite conditions:

  • The decision-maker aspires to increase both income and income-generating assets.
  • The decision-maker lacks the means to simultaneously pursue both objectives. In this context, the means remain unspecified.
  • The decision-maker possesses the capacity to enhance both their income and income-generating assets. Implicitly, this capacity is restricted, or the project stakeholder would not experience scarcity.
  • The decision-maker’s preferences regarding various components of income and income-generating assets differ. In his essay, Robbins importantly reformulates this fourth condition, asserting that if such preferences can be ranked by importance, behavior inevitably adopts the form of choice.

Consequently, the decision-maker must engage in economizing or making choices. Robbins contends that the allocation of a stakeholder’s time and resources correlates with their system of priorities. This definition transcends the mere classification of specific behavioral patterns, emphasizing the analytical exploration of the impact of the shortage on human behavior.

“When limited time and resources can be employed alternatively, and objectives can be ranked by importance, behavior inherently assumes the form of choice. Each action involving time and limited resources for the accomplishment of one goal necessitates the sacrifice of their use for the realization of another, thereby embodying an economic aspect.”

The concepts of scarcity, abundance, and sufficiency are relative, as delineated below:

  • Relative sufficiency occurs when diverse human needs and accessible resources with alternate applications are balanced.
  • Relative scarcity arises when various human needs surpass the available resources with alternative applications.
  • Relative abundance emerges when the obtainable supply of useful goods with alternative applications exceeds the range of human needs.

Economic theory differentiates between absolute and relative scarcity, with the latter serving as the foundation for economics.

Samuelson’s Contribution to Economic Theory

Renowned economist Paul Samuelson made significant contributions to the field of economics, particularly through his widely recognized textbook, “Economics.” Among his numerous insights, Samuelson elucidated the concept of relative scarcity and its relation to economic goods.

Samuelson connected the ideas of relative scarcity and economic goods by arguing that shortage is a fundamental precondition for the existence of economic goods.

Defining Relative Scarcity

Relative scarcity refers to the condition where resources are limited, causing goods and services to be insufficient in meeting the needs and desires of all individuals. In such circumstances, resources must be allocated to create the most value and satisfy the greatest number of wants.

The Absence of Scarcity and its Implications

Samuelson posited that if shortage were not a factor and an infinite quantity of every good could be produced, there would be no economic goods. In other words, goods are considered economic goods only when they are relatively scarce.

Resource Limitations and Commodity Production

The crux of economic decision-making lies in the limitation of available resources. These constraints necessitate choices regarding the allocation of resources to produce different commodities, each vying for a share of the limited resources.

Choosing between Scarce Commodities

The inherent scarcity of resources forces individuals, organizations, and governments to make choices between relatively scarce commodities. These decisions are fundamental to the study of economics, as they aim to maximize the satisfaction of human wants within the context of scarce resources.

Modern Concepts of Scarcity

Scarcity refers to the gap between limited resources and theoretically limitless human desires. It involves making sacrifices or trade-offs to obtain more of the scarce resource that is wanted. Shortage necessitates competition for scarce resources, which takes place when people strive to meet the criteria determining resource allocation.

The price system or market prices are one method of allocating scarce resources. If a society coordinates economic plans based on willingness to pay money, its members will compete to earn money. If other criteria are utilized, competition will likely occur in terms of those criteria.

Scarce and Nonscarce Goods

A scarce good is a commodity that has a greater quantity demanded than supplied at a price of $0. Scarcity implies that not all societal goals can be pursued simultaneously, necessitating trade-offs between different objectives.

On the other hand, nonscarce goods are not subject to competition over ownership. Nonscarce goods can either exist infinitely, lack a sense of possession, or be infinitely replicated. These goods are not necessarily valueless; some might even be essential for existence.

Impact of Scarcity on Society

Scarcity can be divided into three distinct categories: demand-induced, supply-induced, and structural scarcity. A demand-induced shortage occurs when resource demand increases while supply remains unchanged. Supply-induced shortage arises when supply is significantly low compared to demand, typically due to environmental factors such as deforestation or drought. Lastly, structural scarcity happens when a segment of the population does not have equal access to resources, usually due to political disputes or geographical barriers.

Scarcity, especially supply-induced and structural scarcity, often leads to conflicts over resources. It is essential for society to address and manage scarcity to maintain stability and ensure equitable access to resources.

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