What Is Scarcity?

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  • Written By: Esther Ejim
  • Edited By: Kaci Lane Hindman
  • Last Modified Date: 31 March 2020
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Scarcity is a relative term that derives its meaning or relevance from the imbalance between supply and demand. That is to say that there can be no scarcity if the supply is at par with the rate of demand for any type of good or service. In this sense, something may only be classified as scarce when there is a demand for it that cannot be met by the rate of supply. Some items are scarce because there is a limited quantity of the product that remains constant while other factors around it influence its level of scarcity, such as land and human population levels. Other items are necessary, but due to their abundance they cannot be labeled as scarce resources, an example of which is air.


It is the level of necessity, need or requirement for an item that increases its value and determines the level of demand for the item. For instance, crude oil is a naturally occurring commodity that is in high demand around the world for different purposes, such for fuel. The demand for crude oil exerts a lot of pressure on a finite or limited resource, meaning that this increases its value. Another consideration when analyzing the concept of scarcity is the fact that resources are not evenly distributed around the world, as the same resource may be abundant in one country but lacking in another. The application of scarcity here is only valid to the extent that it affects the country lacking the resource.

Still using the example of crude oil, some countries are naturally abundantly endowed with the resource, meaning that it is not a scarce resource for those areas. Keeping in mind that crude oil is a vital resource for all countries of the world, the demand for this commodity is the determinant of its value as well as the enabling factor for the disparity between the supply and demand. Those countries that lack the resource consider it a scarce resource that must be obtained at the expense of a valuable consideration.

The relationship between scarcity and value is one that has been exploited by unscrupulous suppliers and manufacturers for their own profit. For instance, this connection can be clearly seen in the diamond industry where the illusion of scarcity has served to keep the price of diamonds at an astronomically high level in relation to what it could be if the real force of supply and demand are allowed to naturally occur. Such a practice is further fueled by the fact that the diamond trade is a monopoly with one highly influential company that determines the majority of diamond supply.


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