In economics, ‘scarcity’ and ‘shortage’ have different meanings. Almost all resources are scarce, since man does not have the ability to create natural resources. On the other hand, shortage of any resource can be created by man, by controlling the supply, though resources are available to satisfy the current demand. Buzzle talks about difference between the aforementioned terms in detail.
Time and Tide Waits for None
Time is one of the most precious and scarce resources. All living beings come with a limited lifespan, time is scarce for all of us. Hence, we plan all our activities within a given time-frame. However, when we say that time is short for a certain activity, we actually have time, but we prefer to spend it on some other task rather than that activity. That is why the interest rates for loans differ for different time periods. We commonly refer to it as ‘time-value of money’.
‘Scarcity’ and ‘Shortage’, though both words are fairly common and seem synonymous, they are usually misinterpreted. In layman’s terms, they may be used interchangeably, but in the field of economics, they’re completely different terminologies. This Buzzle article will delve deeper to understand the difference between the two terms along with examples.
Scarcity of Resources
In economics, when we state that something is scarce, it implies that something is available in limited quantity naturally. It does not mean short-term or temporary unavailability. Scarcity is permanent in nature. All nations face economic problems because resources are scarce, and wants unlimited. Hence, every economic system has to answer this question of scarcity, and accordingly, plan for the production requirements. Since they are scarce, they are available free of cost, hence, those who want to satisfy their wants have to forgo something. The modern economic system uses ‘money’ as the medium of exchange. These resources are scarce, hence have to be used judiciously. They cannot be created more than available. Of course, alternatives to scarce resources can be created; however, they also need utilization of other resources.
The principle behind this is ‘Man cannot create matter’. He simply converts the form, for his own utility. All resources are scarce and answering this question of scarcity, and meeting the wants, is the basic function of all economic systems. He employs the factors of production to produce different types of goods, using the scarce resources.
Examples of Scarce Resources
Water, land, oil, natural gas, minerals, etc., are scarce resources. That explains why we have to pay for them, despite being available naturally.
Every time you spend, something is scarce, you lose the opportunity of utilizing it for some other purpose. This is called the ‘opportunity cost’. Of course, the degree of scarcity is different for different goods.
Shortage of Resources
The market forces of demand and supply determine the prices of a product. Shortage can be termed in a simple manner as a situation when there is more demand than supply in the market. This means that shortage is man-made. If the sellers and producers want, they can increase the supply of resources in the market; however, they do not do so, to push the prices of the product. When the market prices reach their desired level, they pump in the resources in the market. However, a shortage may not be deliberately created by suppliers, it may also be created by natural calamities, war, emergency situations, etc.
Examples of Resource Shortage
If traders go on a strike in protest of levying of a tax, and shut their shops for almost a week, there will be a shortage of products due to the strike, and the consumers will not be able to buy goods, despite the shops being stocked with them.
To push up the prices, suppliers may use clever techniques. For non-perishable products, they can stock the items and create a shortage of goods, until the prices rise. With development in preservation techniques, they can even stock perishable items.
There might be a natural calamity, such as drought or flood, due to which crops might be lost, and until food is supplied from other areas, there will be shortage of food in the affected area.
Things to Ponder
► Scarcity of Air ?
The air we breathe is available free of cost. However, with increasing pollution of air, you can say that ‘clean air’ is scarce. Will there come a time when we will have to pay for clean air?
With increasing shortage of water in different areas of the world, the idiom, ‘spend money like water’ will soon become redundant. Rather, in times of drought, you can say, ‘You have to spend money like water, on buying water!’ Paradoxical, ain’t it?
► Shortage of Money
‘Money’ is a highly misconstrued term. ‘Money’ as a good (entity), is neither the end nor the requirement. Money is simply a medium of exchange that has been introduced due to the limitations of the barter exchange system. Thus, we cannot simply solve the economic problems of any nation by introducing more money in the market. Money is not freely available, and its circulation is determined by regulatory bodies. Though money provides ‘purchasing power’, it does not satisfy your basic wants. You need money to buy them, because it is an accepted medium of exchange. Hence, money, though man-made, is kept scarce. Liquidity in the market can be determined by banks and other regulatory authorities.
From the above, we can draw an inference that scarcity is natural and permanent, whereas shortage is man-made and temporary. Almost all resources are scarce, but shortage is caused due to the market situations or other temporary reasons. Whatever it may be, as a human being, it is our moral responsibility to preserve the natural resources of the Earth for our future generations. With the alarming rate of depletion of resources, it’s time, we do a reality check, and do our bit for the sake of humanity.