SCARCITY

As the study of the allocation of limited resources, the concept of scarcity plays a central role in economic theory. With resources being classed as scarce if any individual desires more of it than is currently available to them, economics therefore forms an integral part of ensuring that these resources are allocated in a manner as efficient and as effective as possible. Although substantivist economists and economic anthropologists may argue that the entire concept of scarcity arises due to social or political constructs, most people would surely agree that there is a fundamental mismatch between what people desire, and what is available.

For example, every member of society has essential needs which cover provision of food, water and shelter. However, with even these basic needs being relatively scarce, individuals at all levels (from the lowest to the highest level of the social scale) are required to make decisions as to how to best allocate those resources. One of the ways is through a market economy, where people trade between themselves until overall demand is matched by overall supply through relative adjustments in the actual rates of exchange. Therefore, one of the central roles for the economist is as an analyst of factors which may impact supply and demand, as well as an engineer of methods to ensure that supply and demand work efficiently enough to ensure the optimal allocation of resources in terms of overall welfare and utility.