Dealing with Scarcity

(Introduction to Economics, Lesson 6)

The concept of scarcity is central to a great deal of Economics and to most of the problems and challenges that economists are asked to deal with. Scarcity simply refers to the fact that we have limited — or ‘scarce’ resources.

Any individual country has, for example, a limited amount of farmland and a limited amount of oil. Even when we might have very large natural stocks of something, there may be only a rather limited amount that we can make available in any one year. For example, even if a country has huge supplies of coal — enough to last for many thousands of years — they can still only extract a limited amount from the ground in any one year.

At any one time, a country also has a limited supply of workers. Most goods and products require raw materials and workers to make them — and with a limited supply of raw materials and workers, we are also limited in terms of almost all the other goods we can produce, so those goods are scarce too!

Traditionally, Economics books have sought to distinguish between ‘scarce resources’ that we have a limited supply of and ‘free resources’ that we have an unlimited supply of. They might have listed such things as water and air as ‘free resources’ or ‘free goods.’ In many places in the world, however, water is actually quite scarce. And air isn’t as…