In the introduction to his book, “The Essential Concept of Economic Management,” Economics professor Thorsten von Neurer makes use of a scarcity definition. According to this definition, Economics is: “the science which deals with the management of scarce economic assets.” Sounds like a pretty serious definition. As it turns out, Economics is much more than a science; it is the art of managing scarce resources efficiently. In a society where people must get their jobs, keep up with the housing market, take care of their families, and pay the family bills, scarcity can create social problems.
In a society with abundant resources, economic activity is directed toward meeting those needs rather than unlimited wants. This results in a better balance of economic growth and job creation. For those with scarce resources such as food, water, and energy, the result is economic stagnation or worse. In these cases, scarcity becomes a real problem.
So, what is a scarce good or asset? A scarce good is something that is difficult to find, buy, or afford. While economists use the word scarcity a lot these days, the original meaning was something that was hard to obtain and/or relatively expensive. In other words, economics deals with how scarce a good or asset is rather than its price or monetary value.
There are many different variations on the scarcity definition of economics. Still, for our purposes, let's assume that scarcity means something that is rare and valuable. That brings up a couple of questions. What are the defining features of scarce objects or activities?
Well, in basic economics the definition is easy. Say you want to build a new road. You would first look at the cost of building the road, determine if it is possible, and then look at the labor needed to make it happen. Once you have determined that it is indeed possible and fairly likely that the road will be built, then you would need to look at what you would pay for the product if you were to purchase it today rather than two months down the road.
This is all well and good, but scarcity definition is actually very important in other areas of economics. For instance, scarcity also applies to natural disasters. How rare and valuable is something like a tornado or hurricane? How much damage does it cause? How expensive is repairs going to be? All of these are important factors when deciding where to invest your money and whether or not it makes sense to put it in the stock market or some other more conservative financial instrument.
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