In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good." [1] If the conditions of scarcity did not exist and an "infinite amount of every good could be produced or human wants fully satisfied ... there would be no economic goods, i.e. goods that are relatively scarce..." [1] Scarcity is the limited availability of a commodity, which may be in demand in the market or by the commons. Scarcity also includes an individual's lack of resources to buy commodities. [2] The opposite of scarcity is abundance. Scarcity plays a key role in economic theory, and it is essential for a "proper definition of economics itself". [3]
"The best example is perhaps Walras' definition of social wealth, i.e., economic goods. [3] 'By social wealth', says Walras, 'I mean all things, material or immaterial (it does not matter which in this context), that are scarce, that is to say, on the one hand, useful to us and, on the other hand, only available to us in limited quantity'." [4]
— Guido Montani (1987)
British economist Lionel Robbins is famous for his definition of economics which uses scarcity: "Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." [5] Economic theory views absolute and relative scarcity as distinct concepts and is "quick in emphasizing that it is relative scarcity that defines economics." [6] Current economic theory is derived in large part from the concept of relative scarcity which "states that goods are scarce because there are not enough resources to produce all the goods that people want to consume". [6]
Economic scarcity as defined by Samuelson in Economics, a "canonical textbook" of mainstream economic thought [7] "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good ... (outlined in the production possibility curve (PPC))." [1] If the conditions of scarcity did not exist and an "infinite amount of every good could be produced or human wants fully satisfied ... there would be no economic goods, i.e. goods that are relatively scarce..." [1]
This economic scarcity is not solely due to resource limits, but a consequence of human activity or social provisioning. [8] [9] There are two types of scarcity, relative and absolute scarcity. [8]
Thomas Robert Malthus laid "the theoretical foundation of the conventional wisdom that has dominated the debate, both scientifically and ideologically, [8] [10] on global hunger and famines for almost two centuries." [8] In his 1798 book An Essay on the Principle of Population , Malthus observed that an increase in a nation's food production improved the well-being of the populace, but the improvement was temporary because it led to population growth, which in turn restored the original per capita production level. In other words, humans had a propensity to utilize abundance for population growth rather than for maintaining a high standard of living, a view that has become known as the "Malthusian trap" or the "Malthusian spectre". Populations had a tendency to grow until the lower class suffered hardship, want and greater susceptibility to famine and disease, a view that is sometimes referred to as a Malthusian catastrophe. Malthus wrote in opposition to the popular view in 18th-century Europe that saw society as improving and in principle as perfectible. [11]
Malthusianism is the idea that population growth is potentially exponential while the growth of the food supply or other resources is linear, which eventually reduces living standards to the point of triggering a population die off. It derives from the political and economic thought of the Malthus, as laid out in his 1798 writings, An Essay on the Principle of Population . Malthus believed there were two types of ever-present "checks" that are continuously at work, limiting population growth based on food supply at any given time: [12]
Daoud argues that [8]
There are two types of scarcity implicit in Malthusianism, namely scarcity of foods or "requirements" and objects that provide direct satisfaction of these food needs or "available quantities". [8] These are absolute in nature and define economic concepts of scarcity, abundance, and sufficiency as follows: [8]
Lionel Robbins was prominent member of the economics department at the London School of Economics. He is famous for the quote, "Humans want what they can't have." Robbins is noted as a free market economist, and for his definition of economics. The definition appears in the Essay by Robbins as:
Robbins found that four conditions were necessary to support this definition: [14]
Therefore, the decision-maker must exercise choice, i.e., "economize." Robbins argues that the "disposition of the ... (stakeholder's)... time and resources has a relationship to (their) system of wants." [14] The definition is not classificatory in "pick[ing] out certain kinds of behavior" but rather analytical in "focus[ing] attention on a particular aspect of behavior, the form imposed by the influence of scarcity." [15]
These are relative in nature and define economic concepts of scarcity, abundance, and sufficiency as follows: [8]
Economic theory views absolute and relative scarcity as distinct concepts and "...quick in emphasizing that it is relative scarcity that defines economics." [6] Relative scarcity is the starting point for economics. [8] [17]
Samuelson tied the notion of relative scarcity to that of economic goods when he observed that if the conditions of scarcity did not exist and an "infinite amount of every good could be produced or human wants fully satisfied ... there would be no economic goods, i.e. goods that are relatively scarce..." [1] The basic economic fact is that this "limitation of the total resources capable of producing different (goods) makes necessary a choice between relatively scarce commodities." [1]
Scarcity refers to a gap between limited resources and theoretically limitless wants. [18] The notion of scarcity is that there is never enough (of something) to satisfy all conceivable human wants, even at advanced states of human technology. Scarcity involves making a sacrifice—giving something up, or making a trade-off—in order to obtain more of the scarce resource that is wanted. [19]
The condition of scarcity in the real world necessitates competition for scarce resources, and competition occurs "when people strive to meet the criteria that are being used to determine who gets what". [19] : p. 105 The price system, or market prices, are one way to allocate scarce resources. "If a society coordinates economic plans on the basis of willingness to pay money, members of that society will [strive to compete] to make money" [19] : p. 105 If other criteria are used, we would expect to see competition in terms of those other criteria. [19]
For example, although air is more important to us than gold, it is less scarce simply because the production cost of air is zero. Gold, on the other hand, has a high production cost. It has to be found and processed, both of which require a lot of resources. Additionally, scarcity implies that not all of society's goals can be pursued at the same time; trade-offs are made of one goal against others. In an influential 1932 essay, Lionel Robbins defined economics as "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses". [15] In cases of monopoly or monopsony an artificial scarcity can be created. Scarcity can also occur through stockpiling, either as an attempt to corner the market or for other reasons. Temporary scarcity can be caused by (and cause) panic buying.
A scarce good is a good that has more quantity demanded than quantity supplied at a price of $0. The term scarcity refers to the possible existence of conflict over the possession of a finite good. One can say that, for any scarce good, someone's ownership and control excludes someone else's control. [20] Scarcity falls into three distinctive categories: demand-induced, supply-induced, and structural. [21] Demand-induced scarcity happens when the demand of the resource increases and the supply stays the same. [21] Supply-induced scarcity happens when a supply is very low in comparison to the demand. [21] This happens mostly due to environmental degradation like deforestation and drought. Lastly, structural scarcity occurs when part of a population does not have equal access to resources due to political conflicts or location. [21] This happens in Africa where desert countries do not have access to water. To get the water, they have to travel and make agreements with countries that have water resources. In some countries, political groups hold necessary resources hostage for concessions or money. [21] Supply-induced and structural scarcity demands for resources cause the most conflict for a country. [21]
On the opposite side of the coin, there are nonscarce goods. These goods do not need to be valueless, and some can even be indispensable for one's existence. As Frank Fetter explains in his Economic Principles: "Some things, even such as are indispensable to existence, may yet, because of their abundance, fail to be objects of desire and of choice. Such things are called free goods. They have no value in the sense in which the economist uses that term. Free goods are things which exist in superfluity; that is, in quantities sufficient not only to gratify but also to satisfy all the desires which may depend on them." As compared with the scarce goods, nonscarce goods are the ones where there can be no contest over its ownership. The fact that someone is using something does not prevent anyone else from using it. For a good to be considered nonscarce, it can either have an infinite existence, no sense of possession, or it can be infinitely replicated. [20]
David Ricardo was a British political economist, politician, and member of Parliament. He is recognized as one of the most influential classical economists, alongside figures such as Thomas Malthus, Adam Smith and James Mill.
Economics is a social science that studies the production, distribution, and consumption of goods and services.
In microeconomics, supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, the unit price for a particular good or other traded item in a perfectly competitive market, will vary until it settles at the market-clearing price, where the quantity demanded equals the quantity supplied such that an economic equilibrium is achieved for price and quantity transacted. The concept of supply and demand forms the theoretical basis of modern economics.
Thomas Robert Malthus was an English economist, cleric, and scholar influential in the fields of political economy and demography.
Comparative advantage in an economic model is the advantage over others in producing a particular good. A good can be produced at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. Comparative advantage describes the economic reality of the gains from trade for individuals, firms, or nations, which arise from differences in their factor endowments or technological progress.
Wealth is the abundance of valuable financial assets or physical possessions which can be converted into a form that can be used for transactions. This includes the core meaning as held in the originating Old English word weal, which is from an Indo-European word stem. The modern concept of wealth is of significance in all areas of economics, and clearly so for growth economics and development economics, yet the meaning of wealth is context-dependent. A person possessing a substantial net worth is known as wealthy. Net worth is defined as the current value of one's assets less liabilities.
The iron law of wages is a proposed law of economics that asserts that real wages always tend, in the long run, toward the minimum wage necessary to sustain the life of the worker. The theory was first named by Ferdinand Lassalle in the mid-nineteenth century. Karl Marx and Friedrich Engels attribute the doctrine to Lassalle, the idea to Thomas Malthus's An Essay on the Principle of Population, and the terminology to Goethe's "great, eternal iron laws" in Das Göttliche.
The dismal science is a derogatory term for the discipline of economics. Thomas Carlyle used the phrase in his 1849 essay "Occasional Discourse on the Negro Question" in contrast with the then-familiar phrase "gay science" used to refer to the art of troubadours.
In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not transferable.
Malthusianism is a theory that population growth is potentially exponential, according to the Malthusian growth model, while the growth of the food supply or other resources is linear, which eventually reduces living standards to the point of triggering a population decline. This event, called a Malthusian catastrophe has been predicted to occur if population growth outpaces agricultural production, thereby causing famine or war. According to this theory, poverty and inequality will increase as the price of assets and scarce commodities goes up due to fierce competition for these dwindling resources. This increased level of poverty eventually causes depopulation by decreasing birth rates. If asset prices keep increasing, social unrest would occur, which would likely cause a major war, revolution, or a famine. Societal collapse is an extreme but possible outcome from this process. The theory posits that such a catastrophe would force the population to "correct" back to a lower, more easily sustainable level. Malthusianism has been linked to a variety of political and social movements, but almost always refers to advocates of population control.
The Heckscher–Ohlin model is a general equilibrium mathematical model of international trade, developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics. It builds on David Ricardo's theory of comparative advantage by predicting patterns of commerce and production based on the resources of a trading region. The model essentially says that countries export the products which use their relatively abundant and cheap factors of production, and import the products which use the countries' relatively scarce factors.
The welfare definition of economics is an attempt by Alfred Marshall, a pioneer of neoclassical economics, to redefine his field of study. This definition expands the field of economic science to a larger study of humanity. Specifically, Marshall's view is that economics studies all the actions that people take in order to achieve economic welfare. In the words of Marshall, "man earns money to get material welfare." Others since Marshall have described his remark as the "welfare definition" of economics. This definition enlarged the scope of economic science by emphasizing the study of wealth and humanity together, rather than wealth alone. In his widely read textbook, Principles of Economics, published in 1890, Marshall defines economics as follows:
Political Economy or Economics is a study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of material requisites of well-being.
Economic systems as a type of social system must confront and solve the three fundamental economic problems:
A Malthusian growth model, sometimes called a simple exponential growth model, is essentially exponential growth based on the idea of the function being proportional to the speed to which the function grows. The model is named after Thomas Robert Malthus, who wrote An Essay on the Principle of Population (1798), one of the earliest and most influential books on population.
The book An Essay on the Principle of Population was first published anonymously in 1798, but the author was soon identified as Thomas Robert Malthus. The book warned of future difficulties, on an interpretation of the population increasing in geometric progression while food production increased in an arithmetic progression, which would leave a difference resulting in the want of food and famine, unless birth rates decreased.
A free price system or free price mechanism is a mechanism of resource allocation that relies upon prices set by the interchange of supply and demand. The resulting price signals communicated between producers and consumers determine the production and distribution of resources. Therefore the free price system rations supplies, distributes income, and allocates resources.
Lionel Robbins' Essay sought to define more precisely economics as a science and to derive substantive implications. Analysis is relative to "accepted solutions of particular problems" based on best modern practice as referenced, especially including the works of Philip Wicksteed, Ludwig von Mises, and other Continental European economists. Robbins disclaims originality but expresses hope to have given expository force on a very few points to some principles "not always clearly stated"
The Ultimate Resource is a 1981 book written by Julian Lincoln Simon challenging the notion that humanity was running out of natural resources. It was updated in 1996 as The Ultimate Resource 2.
The Center for Population Economics is a research center at the University of Chicago Booth School of Business. The work of the CPE is funded primarily by the U.S.'s National Institute on Aging of the National Institutes of Health.
Various definitions of economics have been proposed, including attempts to define precisely "what economists do".