Question

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

Short answer

Scarcity is the fundamental economic problem of having limited resources to satisfy unlimited wants and needs. Two causes of scarcity are limited resources, such as natural resources, human labor, and time, and increasing demand due to factors like population growth, rising incomes, and technological advancements. This leads to the need for choices about how to allocate these limited resources efficiently to meet the wants and needs of the population.

Step-by-step solution

Define Scarcity

Scarcity is the fundamental economic problem of having limited resources to satisfy unlimited wants and needs. In other words, resources are not abundant enough to provide everything that people desire. Therefore, we need to make choices about how to allocate these limited resources to fulfill our needs and wants efficiently.

Cause 1 - Limited Resources

One cause of scarcity is the limited resources available. Resources such as land, labor, and capital (machines, tools, and factories) are required to produce goods and services. However, these resources are limited and cannot meet the unlimited demands of people. Some examples of limited resources include: - Natural resources, such as oil, forests, and fresh water. - Human labor, since there are a finite number of working people to accomplish tasks. - Time, since there are only 24 hours in a day. These limitations lead to scarcity because there are not enough resources to satisfy all of the wants and needs of people.

Cause 2 - Increasing Demand

Another cause of scarcity is the increasing demand for goods and services. As the population grows, the demand for resources, products, and services also increases. This puts more pressure on the limited resources, creating scarcity. The increasing demand can be due to various reasons, such as: - Population growth. - Rising incomes, which allow people to consume more goods and services. - Technological advancements, which can create new desires and thus increase the consumption of goods and services. As demand increases, resources become even more scarce, leading to choices needing to be made about how to allocate them efficiently.