Scarcity is a simple conept to understand. When something is scarce, there is not enough of it. Many people might want it (or even need it). But not everyone can have it. The picture above shows scarcity in action. There is only one tomato. But there are five forks that belong to five different mouths that want to eat it. In this situation, the tomato is scarce.
Scarcity exists because humans have unlimited wants in a society of limited resources. The world can’t meet everyone’s wants and needs all of the time. Something is scarce if it is hard to get, hard to create or both. The air that we breathe is not scarce. There is plenty of it and everyone can have it at the same time. On the other hand, gold is scarce. It has to be found, dug out of the earth and processed. And even then, it can only be used for one purpose at a time. One piece of gold can’t be a grill and a Cuban link chain! A choice has to be made.
Artificial scarcity is created by the maker of a product. Something is artificially scarce when more of it can be made but the producer just chooses not to. An example is when a product is released as a “Limited Edition.” They could release more if they wanted to. But they decide to release a smaller amount for business reasons.
Points to remember:
- Scarcity is when there is not enough of something.
- Something can be scarce when it is hard to find in the earth, like gold.
- Something can be scarce when only a small amount is made, like Limited Edition Jordans.
- Even your time is scarce, because there is a limited amount – only 24 hours per day, and not a second more.
- When you make a choice, what you did not choose is the “opportunity cost” of that choice. Think of it like a price tag.