One of the defining features of economics is scarcity, which deals with how people satisfy unlimited wants and needs with limited resources. Scarcity affects the monetary value people place on goods and services and how governments and private firms decide to distribute resources.


5 - 8


Conservation, Earth Science, Social Studies


Water Truck in India.

Getting clean potable water in the hotter months of the year is a challenge for many New Delhi residents as the population grows and the clean water supply shrinks. Water trucks arrive to tens or even hundreds of people waiting for their daily supply of c

Photograph by Hindustan Times
Getting clean potable water in the hotter months of the year is a challenge for many New Delhi residents as the population grows and the clean water supply shrinks. Water trucks arrive to tens or even hundreds of people waiting for their daily supply of c

Scarcity is one of the key concepts of economics. It means that the demand for a good or service is greater than the availability of the good or service. Therefore, scarcity can limit the choices available to the consumers who ultimately make up the economy. Scarcity is important for understanding how goods and services are valued. Things that are scarce, like gold, diamonds, or certain kinds of knowledge, are more valuable for being scarce because sellers of these goods and services can set higher prices. These sellers know that because more people want their good or service than there are goods and services available, they can find buyers at a higher cost.

Scarcity of goods and services is an important variable for economic models because it can affect the decisions made by consumers. For some people, the scarcity of a good or service means they cannot afford it. The economy of any place is made up of these choices by individuals and companies about what they can produce and afford.

The goods and services of any country are limited, which can lead to scarcity. Countries have different resources available to produce goods and services. These resources can be workers, government and private company investment, or raw materials (like trees or coal). Certain limits of scarcity can be balanced by taking resources from one area and using them somewhere else. Sellers like private companies or governments decide how the available resources are spread out. This is done by trying to strike a balance between what consumers need or want, what the government needs, and what will be an efficient use of resources to maximize profits. Countries also import resources from other countries, and export resources from their own.

Scarcity can be created on purpose. For example, governments control the printing of money, a valuable good. But, paper, cotton, and labor are all widely available across the world, so the things required to make money are not themselves scarce. If governments print too much money, the value of their money decreases, because it has become less scarce. When the supply of money in an economy is too high, it can lead to inflation. Inflation means the amount of money needed to buy a good or service increases—therefore money becomes less valuable, and the same amount of money can buy less over time than it could in the past. It is therefore in a country’s best interest to keep its paper money supply relatively scarce. However, sometimes inflation can help an economy. When money is less scarce, people can spend more, which triggers a rise in production. Low inflation can help an economy grow.

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Last Updated

May 20, 2022

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