Dealing with Scarcity
(Introduction to Economics, Lesson 6)
The concept of scarcity is central to a great deal of Economics and to most of the problems and challenges that economists are asked to deal with. Scarcity simply refers to the fact that we have limited — or ‘scarce’ resources.
Any individual country has, for example, a limited amount of farmland and a limited amount of oil. Even when we might have very large natural stocks of something, there may be only a rather limited amount that we can make available in any one year. For example, even if a country has huge supplies of coal — enough to last for many thousands of years — they can still only extract a limited amount from the ground in any one year.
At any one time, a country also has a limited supply of workers. Most goods and products require raw materials and workers to make them — and with a limited supply of raw materials and workers, we are also limited in terms of almost all the other goods we can produce, so those goods are scarce too!
Traditionally, Economics books have sought to distinguish between ‘scarce resources’ that we have a limited supply of and ‘free resources’ that we have an unlimited supply of. They might have listed such things as water and air as ‘free resources’ or ‘free goods.’ In many places in the world, however, water is actually quite scarce. And air isn’t as free as we once assumed either — especially if you’re talking about clean air. Clean, smog-free air is not freely available to many of the inhabitants of some of the world’s largest cities. So, almost all resources are ‘scarce resources’ of which we have a limited supply.
The key point about scarcity is that, since we are limited in the resources and goods we have available to us, we have to make choices about what we are going to use our scarce resources for. Some projects will get the go ahead — and have resources allocated to them — and other projects will get turned down. We have to choose — and many of the decisions we have to make are difficult ones with profound and often fatal consequences.
Think about it and you’ll realise that many simple, everyday decisions, can have life-changing and deadly consequences. A simple decision to have a cup of coffee is, in effect, a decision that scarce, fertile farmland in a poor country will be used to grow coffee beans for you instead of to grow food to feed the local population or some other poor people around the world.
There are billions of important decisions that have to be made every day and Economics is largely about looking at the choices we face — as individuals, businesses, nations and as a species — and helping us decide which options are the best ones to take. It is a tool for helping us make decisions. It helps us decide how to allocate and use our scarce resources to achieve many of the things we consider are worthwhile in life.
Despite our scarce resources, we have a great many needs and wants. There are certain basic needs that we must fulfil in order simply to survive and to continue the existence of our species. We need water, food, shelter and warmth and, to continue the species, we need a lot of people to have sex occasionally. Lots of other things, we don’t actually need, but we certainly want them and, even in terms of food, drink and sex, we tend to want a lot more than we actually need.
It is often said that humans have unlimited wants. In other words, no matter how much we have, we will always want more. The problem of having unlimited wants and desires, but only scarce resources with which to provide for our wants and satisfy our desires, is often referred to as ‘the basic economic problem’ — and this mismatch of wants and resources is often given as the main justification for the existence of Economics as a discipline of study in the first place.
However, it is important to stop and question whether we really do have unlimited wants. Does there, perhaps, come a point where having more goods and services no longer makes us any better off?
Politicians often behave as if they’re assuming that producing and consuming ever more goods and services will make us better off. They often behave as if this neverending acceleration in the rate at which we produce and consume things might actually be the only way to make ourselves better off. They may think that the job of an economist is simply to tell them how we can produce and consume ever more and more and yet more goods and services.
Actually, any intelligent and responsible economist will realise that making us better off is not simply a matter of producing and consuming ever more goods and services.
In fact, it’s about time we thought about whether we might actually make ourselves better off by producing and consuming far less. An obvious example is with food. Many people are obese because they’ve eaten too much food. It may be politically-incorrect to point this out, but it happens to be true. Many people would clearly be better off if they ate less food. The same goes for the consumption of many other goods.
Scarcity is frequently a very real and pressing problem. Often, however, it is a scarcity of intelligent thinkers, able to reassess the lazy assumptions of the societies we live in, that lies at the heart of our most embarrassing problems and shortages.
