Scarcity?

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Scarcity is a central concept in economics. In fact, neoclassical economics, the dominant school of economics today, defines its field as involving scarcity: following Lionel Robbins' definition, it is the study of the allocation of scarce goods among competing ends. Scarcity means not having sufficient resources to produce enough to fulfill unlimited subjective wants. Alternatively, scarcity implies that not all of society's goals can be attained at the same time, so that we must trade off one good against others.

"Resources scarcity" is defined as there being a difference between what people desire and the demand for a good. Thus, a good is scarce if people would consume more of it if it were free. Scarcity (S) can also be viewed as the difference between a person's desires (D) and his possessions (P). Mathematically, this can be expressed as S = D - P. If P > D, a state of negative scarcity exists which is abundance. For most people desire exceeds possession and this provides the spur to material success. In others an excess of desire over possession can also lead to conflict, crime and war. An Enlightenment philosopher, possibly David Hume, wrote that "all conflict springs from scarcity."

Goods and services are scarce because of the limited availability of resources (the factors of production) along with the limits on our technology and our management skills. These determine the location of society's production possibilities frontier or curve (PPF). Inefficiencies in the use of resources (less than full employment or inappropriate employment of inputs like land and capital) may limit the amount produced so the economy operates below its PPF. It is difficult to abolish all inefficiencies, and some characterize institutional inefficiency as artificial scarcity.

Where goods are scarce it is necessary for society to make choices as to how they are allocated and used. Economists study (among other things) how societies perform the optimal allocation of these resources -- along with how societies often fail to attain this optimality and are instead inefficient.

For example, we may all want to own gold jewelry. However, the amount of gold available is limited, so it is necessary to make choices as to how it is allocated. In a market economy, this is achieved by trade. (Other ways to make this decision involve tradition, community democracy, and government top-down or centralized command.) In the market, individuals and organizations (such as corporations) trade resources amongst themselves, reallocating resources to where they are most wanted by those with purchasing power. In a smoothly operating market system, the rate of exchange between different resources, or price will adjust so that demand is equal to supply. One of the roles of the economist is to discover the relationship between demand and supply and to develop mechanisms (such as pricing, incentives, or penalties) to achieve an optimal outcome (in terms of consumer welfare).

Some see the above definition of scarcity as invalid, on the grounds that it assumes human wants are unlimited. "Unlimited wants" seems a product of indoctrination (say, by advertisers, way of life, conformity to an American lifestyle). The want to rise to a higher social position, some say, spurs a materialistic way of life. Alternatively, the infinitude of wants may be the result of the unsatisfying nature of work in a capitalist economy; the need resulting from noncreative work used to produce something that is of no interest (except to earn a wage) can be "solved" by buying unnecessary product. Thus in News from Nowhere, a somewhat Marxian utopian novel by William Morris, the existence of creative work for all helps to abolish the scarcity of products. However, most economists disagree with these critiques.

Certain intangible goods are likely to remain scarce by definition or by design; examples include awards generated by honours systems, fame, and membership of elites. These things are said to derive all or most of their value from their scarcity. But these are examples of artificial scarcity, reflecting societal institutions. That is, the resource cost of giving someone the title of "knight of the realm" is much less than the value that individuals attach to that title.

As informational goods can be copied at negligible cost, they do not need to be scarce. This is why copies of free software such as GNU/Linux are typically available for very little cost. However, proprietary software and many other products are kept artificially scarce by copyright and patent law.

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