Scarcity

Exam code: 2281

Written by: Ashika|Reviewed by: Caroline Carroll|Updated 2 July 2026

The basic economic problem is that resources are scarce
- In economics, these resources are called the factors of production
There are finite resources available in relation to the infinite wants and needs that humans have
- Needs are essential to human life, e.g. shelter, food, clothing
- Wants are non-essential desires, e.g. better housing, a yacht etc.
Due to the problem of scarcity, choices have to be made by producers, consumers, workers and governments about the best (most efficient) use of these resources
Economics is the study of scarcity and its implications for resource allocation in society

All Stakeholders in an Economy Face the Basic Economic Problem

Consumers	Producers	Workers	Government
In a free market, scarcity has a direct influence on prices The scarcer a resource or product, the higher the price consumers will pay	Producers selling products made from scarce resources will find their costs of production are higher than if they were selling products made from more abundant resources	Workers may want a more comfortable and safer working environment but their employers may not have the resources to create it	Governments have to decide if they will provide certain goods/services or if they will allow private firms to provide them instead Their decision influences the allocation of resources in society. E.g. If they choose to provide national healthcare, fewer Doctors will be available to work in private healthcare

Economic goods are scarce in relation to the demand for them
- This makes them valuable
- Due to their value, producers will attempt to supply them in order to make a profit
- Anything that has a price tag on it is an economic good, e.g. oil, corn, gold, trainers, watches and bicycles
Free goods are abundant in supply
- Due to this abundance, it is not possible to make a profit from supplying free goods
- Drinking water has been a free good for thousands of years, but as the population increases and water sources become more polluted, it has become an economic good
- E.g. Sunlight, the air we breathe, sea water

Finite Resources and Unlimited Wants