Overview
This lecture introduces the foundational economic concept of scarcity, explaining what makes a resource scarce, contrasting scarce and free resources, and describing why scarcity is central to economics.
Defining Scarcity
- Scarcity means there is not enough of something for everyone to have as much as they want.
- A good or resource is scarce if people would want more of it than what is available at no cost.
- Economics exists because of scarcity, focusing on how to allocate limited resources.
Scarce vs. Free Resources
- Scarce resources require trade-offs; people must give up something to get them.
- Examples of scarce resources include caviar (hard to obtain), labor (work requires compensation), and desirable housing or land (limited availability).
- Free resources are so abundant that one person's use does not reduce availability for others.
- Examples of free resources: air and water in some contexts where they are plentiful and easily accessed.
- Sometimes resources shift from being free to being scarce depending on context or technology (e.g., water becoming scarce in a developed town).
The Importance of Scarcity in Economics
- Economics studies how scarce resources are allocated among competing uses.
- Questions central to economics include who gets scarce resources, how much they get, and what must be exchanged for them.
- Economic models are used to understand the consequences of different allocation methods.
Key Terms & Definitions
- Scarcity — the limited nature of resources, requiring choices about their use.
- Scarce Resource — something in limited supply, for which demand exceeds availability at no cost.
- Free Resource — a resource so abundant that use by one does not reduce availability for others.
Action Items / Next Steps
- Reflect on examples of scarce and free resources in your own life.
- Continue to next lesson on the four factors of production.