Essay on Scarcity

Introduction

Scarcity is one of the most important economic concepts because of the reason it is the basic

foundation and reason for the existence of economics. From an economic perspective, it means

the limitation of resources. This economic problem is almost faced in every economic system

across the globe. It is probably the reason behind the smart handling of the factors of production

as it raises the importance of knowing about how to use limited resources. A world without

scarcity, that neither exists nor possible, people could have access to whatever they need and

there will be no need for trade, business activities or distribution of goods and services, and in

short no economics at all. This essay on scarcity also discusses the real meaning of scarcity, the

problem faced while fulfilling human demands with limited factors of production and available

resources.

Summary and Discussion

There are four economy systems currently prevailing in the world that is market economy, mixed

economy, planned economy, and Islamic economy. Each economy system has its own particular

way to solve economic issues. However, more all less, all of these economic systems face the

basic issue of scarcity. It is scarcity that makes it necessary for people to make the best possible

what they have. Due to the scarcity of resources, factors of production need to be utilized

efficiently. For example, insufficiency or limitations of goods or services or resources or

alternatives is fundamental to every economic system. For example, approx. seven million

people travel into New York daily and they decide when to travel and what transportation means

they should use but all of these cannot use the same means of travel at all so they have to decide

between either tube, bus, walk, cycle or even working from home.
Assuming this rational behavior on the level of decision-makers such as governments, firms, and

even households, this optional choice must be of that level considering the most desirable

alternative in all available possibilities that limited or scarce resources allow. That is why

decision-makers will always select that best alternative that ensures maximum satisfaction for

maximum people. Governments with limited tax revenue or public budget have to decide what

initiatives or projects it must take to maximize the overall welfare of the society. The firms on

the other hand with the availability of limited factors of production have to decide what to

produce, how to produce, how much to produce and for whom to produce and what production

method must be adopted for yielding the highest profits. Likewise, the households with the

availability of limited income or cash in hand have to decide about the different combinations of

products for purchasing that must ensure the highest utility. So, the choices made by all these

decision-making units are related to the best self-interest nature of all economic agents.

All societies and economic systems across the world face the issue of scarcity that is why to have

to make choices just like a household. While discussing the scarcity of resources, the concept of

opportunity cost also needs to be discussed. Choosing among available choices involves an

opportunity cost that means choosing one or more than one things are only possible by giving

something or scarifying other option in exchange. In case the final choice is made, the rest of the

options must be forgone. Here the opportunity cost is involved. So the opportunity concept refers

to the real cost in terms of the most favorable option that will be availed while leaving the other

options. So the opportunity cost concept is important to understand because any decision made at

the decision-making unit involves some tradeoff between different available options and each

available option has its relative cost. So, in short opportunity cost is, in fact, the relative cost of

the available alternatives from the perspective of the best available alternatives.
The problem of scarcity of resources is rising rapidly in both developed and developing nations.

At the same time, its recognition at the centrality level is also growing for further development

provided due to the vulnerability of people with low-level income and their large dependency on

natural assets. So the demand for resources from environmental limits perspective and scarcity

perspective have raised the global agenda. Overall demand for all kinds of scarce resources is

also rising due to increased population and also influence in the emerging economies.

Researchers have found that economic models are a simplified version of the reality used for

analyzing the economic situations of the real world. As the economy contains several economic

problems so the economists use different economic models to simplify the complex economic

processes to find out their answers. One of these economic processes to solve the economic

problem is Production Possibility Frontier (PPF) that states how countries, governments, firms or

households can select from two available options or can manage two or more than two demands

or needs at the same time because of the scarcity of resources. Figure-1 below considers the

example of two products rubber and plastic that we need to choose because of the availability of

scarce resources.
 Figure 1: Production Possibility Frontier (PPF)

In the above figure, points A, B, C and D states the efficient position but these can only be

attained with the effective consumption of the resources. From the figure it is evident, the

economy can only produce the 500 units of rubber only if all resources are used to produce

rubber only. In case all available resources are used to produce plastic only then only 250 units

of plastic can be produced. The points at G is impossible to achieve with the existing resources

because the available resources are scarce or limited. In case, point inside PPF, F is attained then

that means the economy is not utilizing the available resources efficiently. In case the economy

produces both rubber and plastic than it can produce 175 units of plastic and 350 units of rubber

at point C. At that position, the economy has to lose 150 units of rubber to produce 50 additional

units of plastic that are opportunity costs. So the downward movement along the PPF, in fact,

rising the marginal opportunity cost.

In this situation, economists assume that only two goods or services are concerning

simultaneously while keeping the remaining products and services constant. Additionally
assumption that consumers have to know-how about the market and they react to the economic

incentives and decision making is also made. However, in the real economy, goods and services

are being produced at a large scale at a time. Despite the fact, all economic assumptions are not

perfectly elastic but the scarcity of resources is still a reality and governments and firms have to

opt between different factors of production.

Conclusion

In conclusion, it can be said the scarcity of resources is one of the biggest problems in the

economy. Nations across the globe have limited economic resources to meet the demands of the

population. That raises an efficient selection of the available resources and factors of production.

In this situation, decision-making units have to focus on three fundamental questions such as

what to produce, how to produce and for whom to produce to get the most ideal situation for all

by effective utilization of these limited resources. Moreover, in this situation, the different

economic models such as Production Possibility Frontier plays a critical role to gain maximum

benefits for all stakeholders.