What is Scarcity?
In the field of Economics, Scarcity is defined as the situation created when the demand for a particular resource exceeds the supply of that resource.
Example: 5000 barrels of oil are needed from Saudi Arabia but only 2000 barrels are currently available. There is a greater demand (5000 barrels) than there is supply (2000 barrels) for oil. Thus, oil is scarce in Saudi Arabia.
Scarcity can include both renewable resources (crops, livestock, water) and nonrenewable resources (oil, coal, precious metals).
What causes Scarcity?
What is Demand-induced Scarcity?
Scarcity can be caused by a sudden increase in demand for a particular resource. This could occur because of:
Increases in population
Increases in Real GDP
Change in preferences
S = Supply
D = Demand
Example:
A small village of 50 people relies on a single well for water. If the population of the village increases to 200 people, the well will no longer be able to sustain the population's need for water (demand).
What is Supply-induced Scarcity?
Scarcity can occur when the supply of a resource is depleted or put under threat. This could be caused by:
Natural disasters or climate change
Contaminated supply (the supply is unusable)
S = Supply
D = Demand
Example:
In Sub-Saharan Africa, climate change has resulted in increased desertification and the depletion of farmland. Thus, the supply of crops produced in this region has decreased dramatically, causing scarcity.