Scarcity | Basic economics concepts | Economics | Khan Academy

The entire field of economics is based on the idea of scarcity, and arguably we wouldn't even need a field of economics if there wasn't the notion of scarcity in the world. So, what does scarcity mean? Well, think about it: what does it mean in everyday life? It means that there's not enough of something to go around.

We're talking about scarce goods, scarce services, and scarce resources. We're talking about things where if there was no cost associated with them, people would use far more of that than there actually is around. In this video, we're going to think about different types of goods and services, or just resources, and think about whether they are scarce or not.

A related idea to scarce resources is its opposite, which is the notion of a free resource. So, this is something that you could argue is infinitely abundant, or at least in a certain context is so abundant that it feels like people can have as much of it as they want. The more that one person has of it, it doesn't take away from someone else.

The reason why scarcity is essential to economics is because economics is the study of how do you allocate these scarce resources. If there's more demand for it than the amount of thing that there is, well, who gets it? How much of it do they get, and what do they have to give up in exchange to get those scarce resources?

But for the sake of this video, let's just first make sure we understand and have a good idea of what resources are scarce and which ones aren't, and why.

This is a picture of caviar, which is essentially fish eggs. It's not easy to get; the fish eggs are deep in the water. Someone has to get to them, and then they have to package it in some way, and they have to get it to your plate. So, do you think that caviar is a scarce resource or a free resource? Well, if it was a free resource, that means that we're just swimming in caviar, that it's so abundant that I could just have as much caviar as I want, and there's still as much as you want, and that everyone gets as much caviar as they like. Well, that's clearly not the case. Caviar is a scarce resource. In fact, it is quite a scarce resource, and because of that, if you want it, you have to give up a good bit to get it.

This is a picture of some people working in a factory, and the resource that jumps out here is that of labor. Labor is interesting because it's not as tangible as something like caviar, but it is a resource. One could even argue that the caviar on your plate—some of its scarcity comes from the labor involved in getting it to your plate. But here, these are clearly gentlemen who are putting together some type of fabric.

So, would you consider labor a scarce resource or a free resource? What would be a free resource? If people were willing to just do as much work for other people—actually willing to do an infinite amount of work for other people—which isn't even humanly possible. Even if it was humanly possible, people aren't willing to do that; they want something in return. Once again, it is a scarce resource.

There are many resources that are pictured right here. You have this beautiful town next to this alpine lake, and some clear scarce resources are here. Many people would love to have a view like you would get from this house or hotel right over here, but not everyone can live there. So that is a scarce resource.

The water here is an interesting one. I could imagine in earlier times, before there was a town here, if there was just a primitive village living next to this fresh water, they would probably view it as a free resource. If someone was thirsty, they would just go up to the lake and drink from the lake; they would not have to give up anything to drink from that.

But now, with the town, it might be a little bit more of a scarce resource. They might want to preserve it for various reasons. In order to get the water to your sink in your house, there might be some services, goods, or labor involved. Someone has to set up the pipes; maybe it has to be cleaned in some way. Well then, it might become a little bit more of a scarce resource.

Air, for most of human history, has been considered a free resource. Even today, I'd argue that something like oxygen, at least on our planet, is considered a free resource. When I take a deep breath, it does not affect your ability to take a deep breath; it does not take oxygen away from you. Now, is there an infinite amount of oxygen in our atmosphere? No, but for our purposes, it feels like there's an infinite amount.

If the photosynthetic plants were to disappear, and all of a sudden the oxygen started to diminish, or if we were in a space station where there isn't a seemingly infinite amount of oxygen, well then you could imagine a world where it could become a scarce resource. You could imagine a colony on the moon, or on Mars, or in the space station, where it had some type of economic system to decide who gets how much oxygen.

So, I will leave you there. As already mentioned, scarcity is the central idea in all of economics. It's the reason why we even need a field called economics. As you go forward in your study of both micro and macro economics, we'll be looking at ways to allocate these scarce resources. We'll try to study what people have to give up in order to have access to these resources, and we will have models that will help us understand what the implications are for these different methods of allocating resources.