What is scarcity? Can you think of two causes of scarcity?
Definition of scarcity and its two causes.
Scarcity is the basic economic problem and can also be considered as the fact of life. It is basically the gap between limitless human wants and limited available resources. Economic scarcity requires people to make decisions regarding the efficient utilization of resources, to satisfy their basic needs as possible.
Two major causes of scarcity:
1. Limited resources: All the resources including raw materials, land, tools, and labor are required to produce any type of goods or services, but they exist in limited supply only. This limitation is the basic economic problem that we face. Hence, we make trade-offs.
2. Limitless wants: Human wants can be considered virtually infinite, as we never get enough of what we want. It is the basic human nature that irrespective of the variety of goods and services we consume, we always want something else. And, this problem exists in all socioeconomic groups.
Hence, limited resources and limitless wants are the two basic causes of scarcity.
Importance of Economics:
Economics is the study defining how businesses, societies, households, governments, and individuals allocate their scarce resources. It is not just about money, but more about making choices and decisions such as business decisions, societal decisions, family decisions or individual decisions keeping scarcity in mind.
Hence, the valuable knowledge gained through economics helps in making well-informed decisions concerned with the optimal distribution of resources in society.