Question

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

Short answer

When the demand for goods and services exceeds the available supply, scarcity arises.

The two causes of scarcity are:

1. Poor distribution of resources
2. A rapid increase in demand

Step-by-step solution

Step 1. Introduction

Humans require products and services to meet their insatiable desires and demands. Producing products and services necessitates the use of resources such as land, labor, and capital. These resources, however, are limited.

Step 2. Causes of Scarcity.

When human demands for goods and services outnumber available supply, scarcity occurs. To produce goods and services certain resources are required but as the supply of these resources is limited, it leads to scarcity.

The two causes of scarcity are:

(i) Poor distribution of Resources.

When there is less supply of resources, and the demand for resources increases, the resources are scarce.

(ii) A rapid increase in demand

An increase in demand means the resources are less in supply which means they are scarce in the economy.