What is the causes and effects of scarcity?

Answer 1

Scarcity happens when there is low supply of something, but a high demand. When this happens, people are prone to paying more for a product. If all of our products and resources are scarce, then we may see inflation. ---- Within a free market scarcity is either effected on one of two levels.

1. Increased demand through

* popularity (trends) * increase in population (birthrates) / population density (rural to urban) * increase in purchasing power of the average person

2. Depletion of supply

* Disruption of production through man-made or natural disasters * Changes in economic conditions alters spending habits Scarcity inevitably increases the demand either through the supply or demand of a product and this increases the cost for the good as people are willing to pay more to get something.

Large corporations that hold large % of the commanding heights of an economy thrive off scarcity. The commanding heights are the resources which drive our primary industries such as oil, coal, lumber, copper and food.

Scarcity = record profits for companies that have not slowed their production.

Thus exon recorded record profits during 2008 when the price of fuel was at an all time high

If a product is abundant and available to everyone at an extremely low cost, who would pay for it? How could you build an industry around it? You couldn't! Many great inventions have been buried because of this, our economic structure ensures those who can provide a scarce product lots of wealth.