Updated Feb 20, 2022

What is Scarcity?

What is Scarcity?

Introduction

The ability to make optimal use of resources is what defines organisational efficiency. Scarcity is a concept that is important to understand because it can potentially affect how businesses allocate resources, manufacture their products, and address the requirement of available materials in the way they function. Many businesses who master this concept are able to forecast how their companies will be affected in the long run and how to successfully manage their resources to make sure that they are meeting consumer demands.

Scarcity, also known as paucity, is the term used for the gap between the number of resources available and demand from the public for such resources. It is then up to the company to decide how these resources will be allocated and used to meet as much demand as possible. Therefore, all resources with no cost in consumption can be considered scarce. However, this happens only in theory, and the reality is very different.

Types of Scarcity

The scarcer the resource, the higher the value. For example, a business in the oil manufacturing industry may see that there is a high demand for it. However, since it comes in limited quantities, the demand is also higher, making the value of the oil greater in turn.

1. Relative scarcity

Scarcity is often confused with the shortage. However, there are enough raw materials to manufacture the product in shortage, but it is not done because of poor allocation and distribution. Scarcity, on the other hand, limits the amount of material that can be made because there is a limited amount of natural resources that the business may not be able to acquire quickly.

      2. Absolute Scarcity

Absolute scarcity means that the supply of a good is finite, and it is not possible to increase the supply in any way. There may be more resources available, but the supply does not change. The number of goods supplied cannot diminish, extend, or reduce in absolute scarcity. This means even if demand increases, the supply will not.

     3. Structural Scarcity

Some businesses require more raw materials than others, which is known as structural scarcity. When there is an unequal distribution of resources among businesses for them to manufacture goods, it results in resource theft. This can be unfair because one business can get more resources than they need, resulting in another business failing to meet demand.

How Does Scarcity Work in Business?

Scarcity is a factor that affects supply and demand in many ways. In fact, scarcity is not only limited to natural resources or products, and everything usable can be considered resources. When raw materials diminish in availability, it can affect the way businesses manufacture goods. Businesses need to understand scarcity so that they can make better-informed choices about where their raw materials are going and how to use them efficiently. In business, scarcity can work in ways like:

• Resource Supply

The study of economics and scarcity often gives many companies an idea of how they can meet demands. If there is a mismatch between supply and demand, the business might need to reevaluate how resources are allocated and assess the risk involved in acquiring more of such resources.

• Increased Profitability

When manufacturers face scarcity of raw materials, they may need to consider alternatives to ensure that they meet demand and make profits in the bargain. This means that business owners need to make the necessary adjustments to sourcing the right material, which is similar, and switch to more economical methods of making their products for the consumers.

• Consumer Demand

Sometimes, a business may run out of products and fail to meet the demands of its consumers. The knowledge of scarcity can help these companies keep up with demands over time and provide their customers with limited edition products to increase interest and understand what their consumers are looking for.

Conclusion

Although scarcity can generally refer to resources, this does not mean that it is limited to raw materials alone. Sometimes resources can also be intangible and help many businesses function efficiently. Scarcity allows businesses to allocate and use their resources effectively to meet demand which means they stand to make a profit out of the deal. However, in some cases, acquiring the resources may not be possible, and the business has to do with the ones it has in hand. Through effective allocation and resource management, the business can ensure a competitive advantage in the market.