Why Is Scarcity The Fundamental Problem Of Economics?

Fundamental Problem Of Economics

What do we mean by Scarcity in general? Scarcity is the state of unavailability of certain goods in a society. In economics, Scarcity means limitations that imply inadequacy or insufficiency in goods, resources, and capacities through which desired goals are achieved. It is considered to be a basic economic problem. It is a situation that makes people take responsibility and make wise decisions to divide resources accordingly and make the best use of them to fulfil their basic needs.

Examples of Scarce Resources in Economics:

  • Rearing fewer cattle- The lower the number of cattle, the higher the chances of Scarcity. If cows, hens, and goats are not sufficiently reared, there will be inadequacy in the supply of eggs, milk, cheese, etc., which are our basic everyday needs. 
  • Fishing more than required- When the ponds and rivers are fished in excess, there might be a Scarcity of a particular type of fish or all types of fish.
  • Seasonal Scarcity- Seasonal Scarcity occurs when some fruits and vegetables are available only during a particular season. So, those vegetables and fruits are scarce during the rest of the seasons.
  • Less rain- Rain, as we all know, has a colossal effect on nature. All plants need water to grow, and rain is the most effective water source. Sometimes, too much rain is also harmful to the crops.

What Is The Law Of Scarcity In Economics

The whole concept of Economics is based on one principle, The Law of Scarcity.

The Law of Scarcity is based on the nature of human beings. Humans are never satisfied with what they have; their wants are infinite. All the wants of human beings cannot be met because there are not enough resources available all the time. So, Scarcity is the result of the never-ending wants of people and insufficient availability of resources, and it is the reason behind the creation of Economic systems. If there were no trade systems and people could have whatever they wanted, the resources would disappear soon, and we all would die. So, to allow limited resources to the people equally, a trading system takes place with currencies coming into the picture. Currency has become the most valuable thing in society. When we have something that we do not want much, we trade them so that we can have things that we do not have but need.

What Are The Types Of Scarcity?

Scarcity In Economics

  • Economic Scarcity – The Scarcity of resources depends upon demand and supply. When the supply of a resource decreases, the price of that resource drives up making it economically possible to bring new supplies into the market.
  • Physical Scarcity – Physical Scarcity is caused by the physical world, for example, water, oil, land, etc. When we have a limited resource, Scarcity depends on the demand and availability of the resource.
  • Scarcity as the quality of resources – This type of Scarcity does not have anything to do with demand, supply, or Economy. This includes the supply of a certain quality of resource that is diminished. Examples- are loss of biodiversity, pristine forests, etc. It is the non-market Scarcity. 
  •  Geopolitical Scarcity – Geopolitics is the relationship between political processes and geopolitical settings. Some groups, such as national or organizational, can maintain or control the supply of some resources for achieving economic or political ends.

Why Do All Countries Face The Basic Economic Problem

According to a study on the essential process of an economy, some fundamental problems arise in every Economy of all countries regardless of its growth. We need two basic factors in an economy: the human need for resources is never ending, and the availability of goods and resources are scarce.

There are Three Central Problems of An Economy

  • What to produce – This problem means what goods and services should be produced and in what quantity they should be produced. Since every Economy is limited in resources, they cannot produce everything. Increasing the production of one good lowers the chances of producing other goods. Goods are produced, and their quantities are decided based on their needs and importance.
  • How to produce – This problem means selecting the method or Technique for producing the goods and services. The choice of the method depends upon the cost of the factors of production. There are different ways in which a good can be produced. There are two basic techniques for producing a good-
  • Labour-intensive Technique – in the Labour Intensive Technique, labour is used more than Capital.
  • Capital-intensive Technique – in the Capital intensive Technique, the Capital is more utilized than the labour.
  • For whom to produce – This problem concerns which people will receive the goods; it can be more for the rich and less for the poor or more for the poor and less for the rich. The distribution of goods depends on the paying capability of people.


So, Scarcity is that state in an economy where the resources are fewer and their demands are high. A situation where someone’s favourite food or favourite clothes come to a short unavailability, that situation is known as Scarcity. There are different causes and types of Scarcity, as discussed above. It happens to all economies, no matter how flourishing it is.  

Scarcity In Economics, Basic Economic Problem, Scarcity Types,