Scarcity

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In economics, scarcity is defined as a condition of limited resources, where society does not have 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 trade-offs one good against others are made. Neoclassical economics, the dominant school of economics today, defines its field as involving scarcity: following Lionel Robbins' definition, economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

[edit] Goods and services

Goods and services are scarce because of the limited availability of resources (the factors of production) along with the limits on our technology and skillful people. 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. The amount of gold available, however, 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).

Certain goods are likely to remain inherently scarce by definition or by design; examples include land, and positional goods such as awards generated by honor 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.

[edit] Criticisms

Some see the concept of scarcity as invalid, on the grounds that it assumes human wants are "unlimited." These "unlimited" wants may be more a product of civilization than intrinsic characteristic of humanity. For example, people might be influenced by advertising, peer pressure, or a desire to show off. They may also view excess consumption as a way to compensate for unsatisfying work in the capitalist economy. We should be careful here not to confuse wants and needs.

In News from Nowhere, a somewhat Marxist Utopian novel by William Morris, the existence of creative work for all helps abolish the problem of scarcity. Most economists believe it is impractical to provide creative work to everyone. But it does not follow that work could not be made more fulfilling and enjoyable, or less overtly unpleasant and degrading.