The Problem of Scarcity
Scarcity exists because people’s incomes and time are limited.
Economics & You
If you were very wealthy, would your resources be unlimited? Read on to learn why scarcity exists for everyone.
The need to make choices arises because everything that exists is limited, although some items (such as trees in a large forest) may appear to be in abundant supply. At any single moment, a fixed amount of resources is available. At the same time, people have competing uses for these resources. This situation results in scarcity—the basic problem of economics.
Scarcity means that people do not and cannot have enough income and time to satisfy their every want. What you buy as a student is limited by the amount of income you have. Even if everyone in the world were rich, however, scarcity would continue to exist, because even the richest person in the world does not have unlimited time
Do not confuse scarcity with shortages. Scarcity always exists because of competing alternative uses for resources, whereas shortages are temporary. Shortages often occur, for example, after hurricanes or floods destroy goods and property.
The Factors of Production
Scarce resources require choices about uses of the factors of production: land, labor, capital, and entrepreneurship.
Economics & You
If you have a job, how does the work you do fit in with the bigger economic picture? Read on to learn that labor is one of the factors of production.
When economists talk about scarce resources, they are referring to the factors of production, or resources needed to produce goods and services. Traditionally, economists have classified these productive resources as land, labor, capital, and entrepreneurship.
Land
As an economic term, land refers to natural resources that exist without human intervention. “Land” includes actual surface land and water, as well as fish, animals, trees, mineral deposits, and other “gifts of nature.”
Labor
The work people do is labor—which is often called a human resource. Labor includes any work people do to produce goods and services. Goods are tangible items that people can buy, such as medicine, clothing, or computers. Services are activities done for others for a fee. Doctors, hair stylists, and Web-page designers all sell their services.
Capital
Another factor of production is capital—the manufactured goods used to make other goods and produce other services. The machines, buildings, and tools used in making automobiles, for example, are capital goods. The newly assembled goods are not considered capital unless they, in turn, produce other goods and services, such as when an automobile is used as a taxicab.
When capital is combined with land and labor, the value of all three factors of production increases. Think about the following situation. If you combine an uncut diamond (land), a diamond cutter (labor), and a diamond-cutting machine (capital), you end up with a highly valued gem.
Capital also increases productivity—that is, greater quantities of goods and services are produced in better and faster ways. Consider how much faster an optical check-reading scanner—a capital good—can sort checks as compared to an individual worker reading each one.