Question

What is scarcity? Can you think of two causes of scarcity?

Short answer

Scarcity is the economic problem of having unlimited human wants and needs in a world with limited resources, leading to an imbalance between resource availability and demand. One cause of scarcity is the limited availability of resources such as land, labor, capital, and raw materials. Another cause is the ever-increasing human wants and needs, which become more difficult to satisfy due to limited resources.

Step-by-step solution

Define Scarcity

Scarcity refers to the basic economic problem that arises from having unlimited human wants and needs in a world with limited resources. It is the imbalance between the availability of resources and the demand for these resources to satisfy human wants and needs.

Cause 1 - Limited Resources

One cause of scarcity is the limited availability of resources. Resources such as land, labor, capital, and raw materials are finite, meaning there is a limit to the amount of these resources that we can utilize. As these resources are essential inputs in the production of goods and services that satisfy human wants and needs, the limited availability of these resources contributes to scarcity.

Cause 2 - Increasing Human Wants and Needs

Another cause of scarcity is the constantly increasing human wants and needs. As populations grow and living standards improve, the demand for goods and services increases. However, due to the limited availability of resources, it becomes more challenging to provide an increasing amount of goods and services to satisfy everyone's wants and needs adequately, leading to scarcity.