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Principle of Scarcity Essay

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Updated: May 24th, 2021

In economic theory, the principle of scarcity refers to the limited amount of resources available to fulfill human needs and desires. It is a fundamental basis of economics as the existence of scarcity creates the necessity of choice. The principle of choice, selecting a path of action that presents the most benefits based on the available information at the given point in time, is the core of economic operations. Any individual, group, or country desire goods and services which must be created from resources. In addition, the creation of goods requires the use of abstract means such as research, skill, and time, which also require certain resources. The continuous limitation of resource availability requires a cost and benefit analysis for every decision. The most common interpretation of economic resources is the inputs used to produce goods and services. There are a variety of available resources, including human, natural, financial, and technological. They are necessary to sustain the economy, which is fundamental to human civilization. Therefore, to sustain our existence, resources must be continuously managed to balance human needs and available inputs. Any disbalance most often results in negative consequences and possibly catastrophic outcomes, as evident throughout the history of economics.

Resources are considered scarce because, in order to acquire them, we are faced with the necessity of a tradeoff. Each decision results in an opportunity cost of lost alternatives. There is a limited quantity of every imaginable resource, even if it seems abundant. Goods and resources which are abundant have little to no value (in economic terms) and may be provided for free. However, because something is free does not imply there is no resource cost behind it as materials, time, and energy was necessary for its creation. Value is determined by the intersection of need and desire to meet the constraints of scarcity and purchasing power.

Scarcity is often based on context. For example, the abundance of water in one location does not imply the same for another place. However, even abundant resources can have limitations. Clean air can be polluted to the extent of becoming dangerously unbreathable, notably at the desire to satisfy human needs with industrial production. Therefore, there is a constant necessity for choice in how resources should be managed. For the most part, I agree that resources are scarce based on the provided examples. It should be considered that the economic principle of scarcity is based on demand. Therefore, from an economic perspective, exceptions occur when the resource is not demanded in any manner despite being limited in amount.

Economics is based on the principle that human desires are essentially unlimited. Many economic theories are based on psychological and sociological studies of human behavior. Psychology and history both show that given the opportunity, humans engage in an uncontrolled consumption of resources. The fact that resources are scarce and limited is the only factor that causes a form of behavior considered rational. However, that is an ideological approach that may not fit all real-life contexts. There is a stark difference between human needs and human wants. There is a point where these aspects overlap, but a significant amount of the population will feel satisfied once their basic resource needs are fulfilled. Human desire relies heavily on perception. A person rarely wants something they do not need. Therefore, the problem of resource scarcity becomes the issue of allocation. Various economic theories suggest how society can maximize utility through the proper distribution of resources to satisfy the balance between human needs and human desires.

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