Concepts of Scarcity

Scarcity refers to the condition of insufficiency where the human beings are incapable to fulfill their
wants in sufficient manner. In other words, it is a situation of fewer resources in comparison to unlimited
human wants. Human wants are unlimited. We may satisfy some of our wants but soon new wants arise.
It is impossible to produce goods and services so as to satisfy all wants of people. Thus scarcity explains
this relationship between limited resources and unlimited wants and the problem there in.

Economic problems arise due to the scare goods. These scare goods have many alternative uses. For
example: a land can be used to construct a factory building or to make a beautiful park or to raise
agricultural crops. So, it is very essential to think how limited resources can be used alternatively to
satisfy some wants of people to get maximum satisfaction as possible.

The problem of scarcity is present not only in developing countries but also in highly developed countries
such as Japan, Canada, etc. Thus, scarcity is the heart of all economic problems.

Concept of Choice

Choice is the process of selecting few goods or wants from the bundles of goods or wants. Human wants
are unlimited. So, they are unable to fulfill all their wants at once. They can satisfy only some their
wants. Some wants should be sacrificed to get some other wants. Hence, people postponed less urgent
wants to satisfy more urgent wants. For example: a boy desiring to buy a book does not visit cinema hall.
Thus, the problem of choice deals with utilization of scare resources in such a way that it satisfies human
wants in the best possible way. If human wants were limited or resources were unlimited, then, there
would be no scarcity and there would be no problem of choice. Because of scarcity we are forced to
choose. Unlimited wants and limited resources lead economic problem and problem of choice which can
be shown as follows:

Allocation of Resources

Allocation of resource means scientific management of resources in the production, distribution and
exchange. It deals with how much of resource is necessary in what sector. It is the basic problem of every
economy. We can satisfy only limited wants because we have limited resources. So, these limited
resources are used in such a manner that the satisfaction derived from it is maximum. As the resources
are limited in comparison to wants, the proper allocation of resources is necessary. The proper allocation
of resources deals with the following fundamental problems of an economy.

1. What to produce: This means what amount of goods to be produced. Every demand of every
individual cant be satisfied. So, before producing anything, a decision should be made what goods are to
be produced and to what extent.

2. How to produce: This means which techniques of production (labour intensive or capital intensive
technique to be selected). After the decision of what to produce we must next determine what
techniques should be adopted to produce goods.

3. For whom to produce: This means how the produced goods and services are to be distributed among
different income groups of people that is who should get how much. This is the problem of sharing of
the national product.

4. Problem of full employment: This means the efficient use of scare resources that is no waste or misuse
of resources. Since, resources are scare in relation to human wants. It is necessary to utilize the available
resources to achieve full employment for maximum possible satisfaction.

5. Problem of growth: This means how to achieve the growth of resources. The growth of resources is
related to increase the level of production. Each economy faced the problem of how to increase its
production capacity. For this, the economy has to decide about the rate of capital formation, investment,
and savings.

Production Possibility Curve(PPC)

Production possibility curve analysis graphically the problem of scarcity and choice present in an
economy. It shows the maximum possible production of different combinations of two goods that can be
produced with the given technology and resources. It also analysis how much the production of one
commodity has to be decreased when producing some other commodity. The curve is also known as
product transformation curve because when moving from one point to another, the uses of resources
from one commodity transfer to the production of other commodity. The concept of production
possibility curve is based on the following assumptions:

1. The factors of production are limited.

2. The factors are used only for the production of two goods x and y.

3. Production technique is given.

4. The factors are full utilized.

5. It is based on short run.

Based on the above assumptions, the PPC can be explained with the help of table and diagram as
follows:-

Production Possibility curve (PPC)

Production possibilities Goods x(In thousands) Goods y(In thousands)

Scarcity (also called paucity) is the fundamental economic problem of having seemingly unlimited human
wants in a world of limited resources. It states that society has insufficient productive resources to fulfill
all human wants and needs.

To conclude, explaining the cycle of supply and demand can be simple if one understands the basics, a
limited supply which is known as scarcity will increase the demand which results in a higher price and
pressure a consumer's choice. Raised prices, will then provoke the suppliers to produce more which
creates a larger supply causing the cost to decrease once again. Ultimately, consumers are responsible
for the actions of the market and their decisions are the motivating factors in the economic process of
supply and demand.