Understanding Scarcity in Economics: Causes and Effects

Article Summary

Scarcity is a concept that is central to economics. It refers to the limited availability of resources in relation to the unlimited wants and needs of individuals and societies. There are different types of scarcity, including natural resource scarcity and relative scarcity of inputs. Understanding scarcity and its causes is important in developing economic policies and making informed decisions.


Scarcity is a fundamental concept in economics that affects all individuals, organizations, and nations. It is the underlying force that drives economic decisions and shapes the way resources are allocated. This article will explore what scarcity is, the different types of scarcity, and their causes and solutions.

What is scarcity?

Scarcity is the fundamental economic problem of having seemingly unlimited human wants and needs in a world of limited resources. It is a situation where the availability of resources is not sufficient to satisfy all the needs and wants of individuals or society. Scarcity is an ever-present condition, and it is the basis for all economic decisions.

The concept of natural resource scarcity

Natural resource scarcity refers to the finite nature of natural resources such as land, water, minerals, and fossil fuels. These resources are essential for economic activity and are often used to produce goods and services. Natural resource scarcity is an important issue because it can have a significant impact on the environment, economic growth, and social welfare.

Definition and explanation

Natural resource scarcity refers to the limited availability of natural resources relative to the demand for them. It is caused by factors such as overexploitation, pollution, climate change, and population growth. Natural resource scarcity can result in price increases, supply shortages, and environmental degradation.


Examples of natural resource scarcity include:

  • The depletion of fossil fuels such as oil and coal
  • The loss of agricultural land due to urbanization and desertification
  • The overfishing of oceans, resulting in declining fish stocks
  • Water scarcity in many parts of the world due to climate change, population growth, and inefficient use

Causes and solutions

The causes of natural resource scarcity are complex and multifaceted. Some of the main causes include overexploitation, pollution, climate change, and population growth. To address natural resource scarcity, solutions may include:

  • Conservation and sustainable use of natural resources
  • Development of alternative sources of energy
  • Regulation and control of resource use
  • Education and awareness-raising on environmental issues

PRO TIP: Prioritize your needs over wants and to practice responsible consumption to make the most out of the resources available to you.

The concept of relative scarcity of inputs

Relative scarcity of inputs refers to the situation where the availability of certain resources is limited in relation to their demand. This type of scarcity can arise in any market where demand exceeds supply, and it affects the price and availability of goods and services.

Definition and explanation

Relative scarcity of inputs occurs when the demand for a particular resource exceeds its supply. This can be due to factors such as limited production capacity, high production costs, or high demand. Relative scarcity of inputs affects the price and availability of goods and services, and it can lead to market inefficiencies and imbalances.


Examples of relative scarcity of inputs include:

  • The shortage of skilled labor in a particular industry
  • The limited availability of a certain type of raw material
  • The scarcity of affordable housing in a particular region
  • The scarcity of healthcare services in certain areas

Causes and solutions of relative scarcity of inputs

There are several causes of relative scarcity of inputs.

Some of these causes include:

  1. Unequal Distribution of Resources: The unequal distribution of resources can lead to relative scarcity of inputs in certain areas. For instance, if one region has a lot of oil reserves and another has very little, the region with less oil will experience relative scarcity of oil.
  2. Increase in Demand: A sudden increase in demand for a particular input can cause its relative scarcity. For example, if the demand for skilled labor increases, the relative scarcity of skilled labor will increase.
  3. Technological Advancements: The introduction of new technologies can lead to relative scarcity of inputs. For instance, the development of new machines can increase the demand for skilled labor.

There are several solutions to relative scarcity of inputs, some of which include:

  1. Increase in Supply: The most obvious solution to relative scarcity of inputs is to increase their supply. This can be achieved through measures such as investment in education and training, or by increasing production of the inputs in question.
  2. Substitutes: In some cases, substitutes can be used to replace the scarce input. For example, if there is a relative scarcity of skilled labor, businesses can use technology or automation to perform tasks that would otherwise require skilled labor.
  3. Price Mechanism: The price mechanism can also be used to solve the problem of relative scarcity of inputs. If the demand for a particular input is high, the price will increase, which will encourage suppliers to produce more of the input.

Scarcity and opportunity cost

Opportunity cost is another concept closely related to scarcity. Opportunity cost refers to the value of the next best alternative that must be given up when making a decision. In other words, it is the cost of the opportunity forgone.

Scarcity leads to opportunity cost because resources are limited and must be allocated between different uses. When we choose to use a resource for one purpose, we must give up the opportunity to use it for another purpose. The opportunity cost of a decision is the value of the best alternative forgone.

Scarcity and market forces

Scarcity has a significant impact on market forces. In a market economy, prices are determined by the interaction of supply and demand. When a good or service is scarce, its price will increase, which will encourage suppliers to produce more and consumers to demand less. As the supply increases and demand decreases, the price will eventually decrease.

Scarcity and economic growth

Scarcity can also have an impact on economic growth. Economic growth occurs when the economy produces more goods and services over time. However, if resources are scarce, it may be difficult to increase production. This is because resources must be allocated between different uses, and increasing production in one area may require sacrificing production in another area.

Scarcity and distribution of wealth

Scarcity can also have an impact on the distribution of wealth. In a market economy, those who own scarce resources such as land or capital have a significant advantage over those who do not. This can lead to wealth inequality.

Scarcity and sustainability

Finally, scarcity is closely related to the concept of sustainability. Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Scarcity of resources can make it difficult to achieve sustainable development. This is because using resources now may make it more difficult for future generations to meet their own needs.

Scarcity FAQs

Is scarcity a bad thing?

Not necessarily. Scarcity simply means that resources are limited in relation to human wants and needs. While scarcity can cause challenges and trade-offs, it can also drive innovation and efficiency.

Can scarcity ever be completely eliminated?

It is unlikely that scarcity can be completely eliminated, as it is a fundamental economic concept. However, with advancements in technology and more efficient use of resources, scarcity can be minimized.

What are some examples of scarcity?

Examples of scarcity include limited supplies of natural resources like oil, gas, and fresh water, as well as scarcity of certain skills or talents in the labor market.

How does scarcity impact market prices?

Scarcity can drive up the prices of goods and services in the market, as consumers are willing to pay more for items that are in limited supply.

Can scarcity lead to conflicts?

Yes, scarcity can sometimes lead to conflicts between groups or nations vying for access to limited resources. This is particularly true for scarce natural resources like oil, minerals, and fresh water.

How does scarcity relate to the concept of opportunity cost?

Scarcity is closely tied to opportunity cost, which is the idea that choosing one option necessarily means giving up another. In a world of scarcity, every decision involves trade-offs and opportunity costs.

What is the role of government in addressing scarcity?

Governments can play a role in addressing scarcity by implementing policies and regulations that promote sustainable use of resources and encourage innovation in areas where scarcity is an issue. However, government intervention can also have unintended consequences and may not always be the most effective solution.

Key takeaways

  • Scarcity is the fundamental economic problem of having limited resources to satisfy unlimited wants and needs.
  • Natural resource scarcity refers to the depletion or limited availability of natural resources, which can be caused by factors such as overconsumption, environmental degradation, and climate change.
  • Relative scarcity of inputs refers to the scarcity of specific factors of production, such as labor or capital, relative to their demand.
  • Scarcity and opportunity cost are interconnected concepts, as the cost of choosing one option is the foregone opportunity of choosing the next best alternative.
  • Market forces such as supply and demand can help allocate scarce resources, but can also lead to unequal distribution of wealth and resources.
  • Economic growth can exacerbate scarcity by increasing demand for resources, but sustainable development can help address scarcity issues in a more equitable and environmentally conscious way.

View Article Sources
  1. Scarcity: A Unit for Grades 2-4 – University of Texas at Tyler
  2. Scarcity – Auburn University
  3. Scarcity – National Geographic Society