3 Causes of Resource Scarcity

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Economists study resource scarcity to better understand the cost and distribution of raw materials. Learn about the causes and effects of resource scarcity.


What Is Resource Scarcity?

The term "resource scarcity" refers to a limited resource that has a low supply and a high demand. Human desires can be infinite in theory, but there are finite amounts of material resources, so there will always be some degree of scarcity.

Economists use scarcity of resources to determine the value of various goods. Because an economic good, such as natural gas, is limited in supply, its price fluctuates with the market. A free good, such as air, on the other hand, is not scarce and thus not commodifiable.


3 Causes of Resource Scarcity

Various factors influence the supply and demand for available resources. The following are the three main causes of scarcity:

1. Demand-induced: As supply remains constant, increasing demand causes resource scarcity, resulting in shortages. For example, rising global population growth raises demand for basic necessities such as food, clothing, and shelter. Demand-induced shortages occur when production of these goods fails to meet rising demand.

2. Supply-induced: When the supply chain for new technologies abruptly decreases while demand remains stable, the good becomes scarce. Supply-induced shortages are resource scarcity caused by a decrease in supply.

3. Structural: Scarcity is also caused by human factors such as the design of supply chains and manufacturing practices. Structural scarcity occurs when one segment of society has access to resources that another segment of society does not. Some communities, for example, face water scarcity due to restrictions on freshwater access.


Impact of Resource Scarcity

Scarcity of resources has an economic and environmental impact. When a good becomes scarce, its price rises, causing economic issues such as inflation and market decline. As a result, supply and demand imbalances can stifle economic growth and cause widespread shortages.

Scarcity of resources encourages sustainable development from an environmental standpoint. The depletion of non-renewable resources, such as fossil fuels, spurs technological innovation that promotes sustainability and alternative uses for renewable energy sources. Policymakers and business leaders can incorporate sustainable practices into their business models to combat the impact of greenhouse gas emissions and climate change by researching megatrends and optimizing resource use.


2 Types of Resource Scarcity

There are two types of scarcity: relative and absolute scarcity.

1. Absolute scarcity: Absolute scarcity refers to a commodity that has physical constraints on its availability. Absolute scarcity, unlike relative scarcity, is unrelated to demand because it describes an unchanging supply of a resource. For example, there are only so many hours in a day—you can't add more time to a twenty-four-hour period.

2. Relative scarcity: This term refers to resources that are in short supply due to limited natural availability. Because this type of scarcity corresponds to demand, rising demand has an effect on supplies. Nonrenewable resources, such as fossil fuels, are examples of relative scarcity because the planet has a finite supply of these natural goods and demand is high.

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