Resource Scarcity: 3 Causes of Resource Scarcity

The term “resource scarcity” describes a low supply and high demand of a limited resource. In theory, human wants can be infinite, but there is a finite amount of material resources, meaning there will always be some degree of scarcity.

Economists use resource scarcity to determine the value of different goods. An economic good, such as natural gas, has a degree of scarcity, so it has a specific price point that fluctuates with the market. However, a free good, such as air, is not scarce and therefore is not commodifiable.

Different factors impact the supply and demand of available resources. Below are three main causes of scarcity:

1. 1. Demand-induced: An increasing demand as the supply remains the same causes resource scarcity, resulting in shortages. For example, the rise in global population growth increases the demand for essential goods like food, clothing, and shelter. If the production of these goods does not meet rising demands, demand-induced shortages result.
2. 2. Supply-induced: When the supply chain of new technologies suddenly decreases as the demand remains consistent, the good becomes a scarce resource. Supply-induced shortages describe resource scarcity caused by supply declines.
3. 3. Structural: Human factors, such as the design of supply chains and manufacturing practices, also cause scarcity. Structural scarcity occurs when one segment of society has access to resources that are unavailable to another part of society. For instance, some communities experience water scarcity due to limitations on freshwater access.

Resource scarcity has an economic and environmental impact. When a good becomes less available, the price increases, causing economic problems, such as inflation and market decline. As a result, imbalances in supply and demand can hinder economic growth and cause widespread shortages.

From an environmental standpoint, resource scarcity encourages sustainable development. The depletion of nonrenewable resources, such as fossil fuels, encourages technological innovation that promotes sustainability and alternative uses of renewable energy sources. By researching megatrends and optimizing resource use, policymakers and business leaders can incorporate sustainable practices into their business models to combat the impact of greenhouse gas emissions and climate change.

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

1. 1. Absolute scarcity: Absolute scarcity describes a commodity with physical limits on its availability. Unlike relative scarcity, absolute scarcity does not relate to demand since it describes an unchanging supply of a resource. For example, there is an absolute scarcity of hours in the day—you cannot add more time to a twenty-four-hour period.
2. 2. Relative scarcity: Relative scarcity describes resources that have a low supply due to limited natural availability. This type of scarcity corresponds to demand, so increasing demands have an impact on supplies. Examples of resources that have relative scarcity include nonrewnewable resources, such as fossil fuels, since the planet has a finite source of these natural goods and demand is high.

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