When we talked about the definition of economics in the previous topic, we mentioned scarcity. But what is scarcity in the context of A-Level Economics, or rather, economics in general?

Well, ask yourself a few simple questions: Would you like more clothes? Would you like a new car? Or better still, would you like more money to buy more goods and services? For most, if not all people, the answer will be yes. No matter how much you already have, there is always a want for more. In economics, human wants are assumed to be virtually unlimited, and they generally are.

Contrast this with the limited resources available to fulfill these wants. Only a finite amount of goods and services can be produced at any one time. After all, we only have so much resources available on or in our planet, whether natural resources (land and raw materials) such as gold and fish, human resources (labour), or human-made resources (capital) such as factories and machines.

Thus, the reason for scarcity is clear. Human wants are unlimited, yet the resources available to fulfill those wants are limited. This is further compounded by the fact that most resources have various uses. Already limited resources become even more limited in the face of many alternative uses. For example, if gold could be used only for jewellery, there would exist a small possibility that we could mine and process enough of it to fulfill the wants of everybody in the world. But gold can also be used in electronic circuits, electroplating and coins - among various other uses.

This leads directly to a well-accepted definition of scarcity: It is the excess of human wants over the actual amount of goods and services that can actually be produced.

There is, however, one key point to note: All of us do not face an equal problem of scarcity. Scarcity for a poor person will primarily involve having a lack of basic necessities, e.g. food, clothes, and housing. But for a wealthy guy, not having the latest Rolex or perhaps even, the latest Airbus A380 is scarcity at work.

So, how does scarcity directly impact our lives? Well, check out the next article on Choice: The Product of Scarcity in this Basic Economic Concepts series to find out.