Scarcity is one of the fundamental economic problems that arise due to the limited availability of resources and unlimited human wants. Scarcity creates economic problems in various ways, which are discussed below.

Limited resources

Limited resources are the primary cause of scarcity in the economy. There is a limited amount of natural resources, such as land, water, and minerals, which are used to produce goods and services. Similarly, there is a limited amount of labor and capital resources available in the economy. Due to the limited availability of resources, it is not possible to produce all the goods and services required to satisfy human wants.

Unlimited human wants

Human wants are unlimited, and they keep on increasing with the increase in income and standard of living. People always desire more, and their wants are never satisfied. For example, if a person acquires a car, he may want to buy a bigger car or a better model. Thus, the unlimited nature of human wants creates a demand for more goods and services, which cannot be met due to scarcity.

Opportunity cost

Scarcity creates an opportunity cost, which is the cost of choosing one option over another. When resources are scarce, every choice has a cost attached to it. For example, if a country decides to use its resources to produce more cars, it will have to forego the production of other goods such as computers. Hence, the opportunity cost of producing more cars is the production of fewer computers.

Competition

Scarcity creates competition among individuals and organizations for the limited resources available in the economy. As resources are limited, everyone tries to acquire them, leading to competition. This competition can lead to conflicts, which can have adverse effects on the economy.

Price mechanism

Scarcity leads to the price mechanism, which is the allocation of resources based on their prices. When resources are scarce, their prices increase, and people are willing to pay more to acquire them. This creates an incentive for producers to produce more of the scarce resources, leading to an increase in their supply.

Conclusion

In conclusion, scarcity is a fundamental economic problem that arises due to the limited availability of resources and unlimited human wants. Scarcity creates economic problems in various ways, including limited resources, unlimited human wants, opportunity cost, competition, and price mechanism. To overcome the problem of scarcity, it is essential to make efficient use of the available resources and allocate them based on their prices.