What is scarcity in economics? Why every choice has a cost

Scarcity is the condition of having less of something than people would like to use: wants are unlimited in practice, while time, money, land, labor and materials are not. In economics, scarcity is the starting point rather than a special case. Because there isn't enough to go around, every use of a resource means some other use is given up, and something, whether a price, a rule or a person, has to decide who gets what.

In short

• Scarcity means wants exceed the means to satisfy them, so choices are forced. It describes nearly everything people use, not only rare things.
• A production possibilities frontier draws scarcity: the edge of what a farm or a country can make with what it has, where more of one thing means less of another.
• Scarcity is permanent; a shortage is temporary, the gap that opens when a price is held below the level where buyers and sellers match.

What does scarcity mean in economics?

In everyday speech, scarce means rare. In economics it means something both narrower and wider: a thing is scarce when, at a price of zero, people would want more of it than there is. Bread is not rare, but it is scarce, because if it were free people would take more than bakers make. Diamonds are scarce for the same reason, not simply because they are hard to find. Almost everything people use is scarce in this sense, which is why economics treats scarcity as the rule, not the exception.

The textbook definition, in OpenStax's Principles of Economics, is that "scarcity means that human wants for goods, services and resources exceed what is available." Economists group the resources into land (including water, minerals and other natural resources), labor, capital (tools, machines and buildings) and, in many textbooks, entrepreneurship, the skill of combining the others. Each is limited, and each has more than one possible use. That second part matters as much as the first: a resource with only one possible use poses no choice.

The British economist Lionel Robbins built a definition of the whole subject on this in 1932: the study of human behavior "as a relationship between ends and scarce means which have alternative uses." The overview of economics follows where that definition leads; the rest of this page stays with scarcity itself.

Why is even a billionaire's time scarce?

Money relaxes some limits but not all. OpenStax calls time "the ultimate scarce resource": everyone, rich or poor, has 24 hours a day and 168 a week. A person with $10 billion can buy a faster plane, a private chef and staff to run errands, which is buying other people's time to free up their own. They still can't spend the same evening at two dinners, or read every book they own. As income rises, the limit that binds hardest shifts from money toward time, and the value of an hour rises with it, which is one reason people with high incomes so often pay for things that save time.

Scarcity applies to whole societies too. A country has a fixed number of workers, hours, acres and machines in any given year. A government that adds a billion dollars to hospitals has to find it from schools, roads, higher taxes or more borrowing. Even a society with plenty of food and money finds clean air, quiet, attention and homes near the center of a city scarce.

How does a production possibilities frontier show scarcity?

A production possibilities frontier (PPF) is a picture of scarcity: it shows the most of two things that can be made with the resources at hand. Take a farmer with 100 acres split among four fields that suit different crops, some better for wheat and some for corn. Here is what the farm can grow in a season, in tonnes, under five plans:

Plan	Wheat	Corn	Corn gained since the last plan	Wheat given up	Wheat given up per tonne of corn
A	100	0	—	—	—
B	90	40	40	10	0.25
C	70	70	30	20	0.67
D	40	90	20	30	1.5
E	0	100	10	40	4

Read it step by step. Moving from plan A to plan B, the farmer switches the field that is best for corn and worst for wheat. It yields 40 tonnes of corn and costs only 10 of wheat, a quarter of a tonne of wheat for each tonne of corn. Each later switch uses a field better suited to wheat, so the price in wheat climbs: 0.67, then 1.5, then 4 tonnes of wheat for each tonne of corn. The last switch gains 10 tonnes of corn for 40 of wheat. OpenStax calls this the law of increasing opportunity cost, and it is why a PPF is drawn bowed outward rather than as a straight line: resources are not equally good at everything. It is a close cousin of diminishing returns.

The frontier sorts every plan into three kinds. A plan on it, such as C, uses everything fully, so more corn means less wheat. A plan inside it, say 50 tonnes of each, wastes something, perhaps a field left idle by mistake, and both crops could grow at once. A plan outside it, 90 tonnes of each, can't be reached this season with these fields. Scarcity is the frontier itself: the line between what is possible and what isn't. The wheat given up in each row is the opportunity cost of the corn, which is where the next idea in economics starts.

The frontier can move. Better seed, irrigation or more land pushes it outward, so the farm can grow more of both crops, which is economic growth in miniature. Growth shifts the edge of scarcity but doesn't remove it: the new frontier still slopes, and more corn still costs wheat.

Is scarcity the same as a shortage?

No, and mixing them up leads to wrong conclusions. Scarcity is permanent and everywhere. A shortage is a specific gap in a specific market: at the going price, buyers want more than sellers offer. OpenStax defines it as what happens when the price is below equilibrium. Shortages usually end when the price rises or new supply arrives; the concert tickets in supply and demand show one opening and closing.

	Scarcity	Shortage
What it is	Wants exceed the resources to meet them	Buyers want more than sellers offer at the current price
How long it lasts	Always	While the price stays below equilibrium
Where	Nearly every good, service and resource	One market at a time
What ends it	Nothing; growth only pushes the frontier out	A higher price, more supply or less demand
The signs	Prices above zero, and trade-offs	Queues, empty shelves, waiting lists, resale markups

A good can be scarce with no shortage at all. There is no queue for bread, because its price balances what people buy with what bakers make. A price is not a sign that scarcity has been solved; it is one way of handling it. Prices ration what there is among those who want it. Other systems ration in other ways: first come, first served, lotteries, need, or a planner's decision. Each still has to ration something, because scarcity doesn't go away when the price does.

Is anything not scarce?

A few things are not, at least sometimes. Economists call them free goods: there is more than everyone wants even at a price of zero. Older textbooks gave air and seawater as examples, though clean air in a smoky city is scarce. Things that can be copied endlessly at almost no cost, such as a digital file or an idea, aren't used up when one more person uses them, as the Wikipedia article on scarcity notes, though the time and skill to make the first copy still are.

Shared resources that are scarce but free to use are where trouble starts. When nobody owns a fishing ground and no price or rule rations it, each boat takes more than is good for the fleet as a whole, and the stock runs down: the tragedy of the commons. The fixes are all forms of rationing, whether prices, quotas, property rights or community rules.

Still argued

Whether scarcity could ever end is an old argument. In 1930 John Maynard Keynes wrote in Economic Possibilities for our Grandchildren that "the economic problem may be solved, or be at least within sight of solution, within a hundred years," and imagined "a fifteen-hour week." Incomes in rich countries did rise several times over, but working weeks fell far less than he expected, and wants grew with incomes. Some writers argue that automation and near-free copying could still bring a post-scarcity economy for many goods. Most economists reply that as long as time is limited and wants keep growing, choices will keep costing something.

Where does scarcity lead next?

Scarcity is the first link in a chain of ideas. Because resources are limited, every choice has a cost, the best alternative given up. Because choices cost something, people weigh them, usually one more unit at a time, which economists call thinking at the margin. Because people weigh costs and rewards, they respond to incentives. And because different people give up different amounts to make the same thing, trade lets both sides end up with more, the idea of comparative advantage.

Check yourself

• Why is bread scarce in the economic sense, even though it isn't rare?
• In the farm table, why does each extra tonne of corn cost more wheat than the one before?
• What is the difference between scarcity and a shortage, and what ends a shortage?

Sources

• 1.1 What Is Economics, and Why Is It Important? — OpenStax, Principles of Economics 3e, 2022
• 2.2 The Production Possibilities Frontier and Social Choices — OpenStax, Principles of Economics 3e, 2022
• 3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services — OpenStax, Principles of Economics 3e, 2022
• Economic Possibilities for our Grandchildren — John Maynard Keynes, 1930, Marxists Internet Archive
• Scarcity — Wikipedia