PY Education is launching a new article series — "Everyday Economics" — where we explain economic principles through examples from daily life. In this first article, we introduce the most fundamental concept in economics: scarcity. Before discussing scarcity, we first need to understand two ideas — wants and resources.
A want is a human desire for anything, and wants can be divided into material wants and non-material wants. Material wants are straightforward: they are desires for things we encounter in daily life, such as electronic gadgets, clothing and good food. Desires for things without a physical form — music or art, for example — also count as material wants. Non-material wants, on the other hand, are abstract desires, such as making friends or achieving self-fulfilment. A want does not need to be backed by any purchasing power: as long as we long for something and hope to obtain or own it, it counts as a want. Wants are therefore endless — once we obtain one thing, we soon find ourselves wanting another.
Wants: human desires for anything. 1. Material wants: desires for tangible things. 2. Non-material wants: desires for abstract things. Wants are unlimited.
Resources, in turn, are anything that can satisfy human wants. Resources can be divided into renewable and non-renewable resources. A renewable resource regenerates as fast as, or faster than, it is consumed — so at a constant rate it will never run out; examples include solar energy and oxygen. A non-renewable resource regenerates more slowly than it is consumed, so it will one day be exhausted; fossil fuels are an example. In economics, non-renewable resources are limited: at some point in the foreseeable future they will no longer be able to satisfy human wants.
Resources: anything that can satisfy human wants. Renewable resources: regenerate as fast as or faster than they are consumed. Non-renewable resources: regenerate more slowly than they are consumed. Non-renewable resources are limited.
Putting the two together, scarcity is the situation where resources are limited but wants are unlimited. Scarcity is usually described as a relative concept: what matters is not the absolute quantity of resources or wants, but whether the quantity of resources can meet or exceed the quantity of wants. Concretely, even if a resource exists in enormous quantities — say, nearly a trillion tonnes of coal — we still face scarcity as human demand for energy keeps growing: one day we will use up all the coal and face an energy crisis. Since wants are necessarily unlimited and most resources are non-renewable, every one of us faces the problem of scarcity. And this problem draws no line between rich and poor — regardless of wealth, everyone faces scarcity.
Scarcity: the situation where resources are limited but wants are unlimited. Everyone faces scarcity, rich or poor.
Once we grasp the concept of scarcity, we can see why the discipline of economics exists. Economics studies and analyses how people deal with scarcity — how limited resources can be used to satisfy as many wants as possible. In the next article, we will extend the concept of scarcity and see how it shapes our everyday decisions.
Learn more: DSE Economics tutoring
To republish this article, please email [email protected].