Scarcity and rivalry | Basic Economic Concepts | Microeconomics | Khan Academy

What we're going to do in this video is talk about two related ideas that are really the foundations of economics: the idea of scarcity and the idea of rivalry.

Now in other videos, we do a deep dive into what scarcity is, but just as a review in everyday language, you could think of something as scarce. A good or a service is scarce if there's not enough for everyone. Another way to think about it is a scarce resource is one that is limited; it is a limited resource, and there's not enough to go around because there are potentially unlimited wants from people. So, potentially, potentially unlimited, unlimited wants.

We could think of a lot of scarce resources; oil would be a scarce resource. There's a limited supply of oil, and potentially, if oil were free, there's an unlimited amount of people who would want to use that oil. A lot of economics is, well, when you have a scarce resource like oil, or land, or housing, how do you allocate those resources amongst people who are demanding those resources?

Now, rivalry is a related idea. When we think about the everyday word rival or rivalry, you imagine multiple parties competing for something, and that's essentially getting pretty close to the economics definition of it. Something is a rival good or a rival resource. I'll just call it a rival good right now. If when one person uses it, it limits the ability for other people to use it.

So, one person consuming it or using it limits the ability for others to use it. There's a lot of examples of rival goods and things that are both scarce and rival goods. For example, if I were to put a nice, delicious cake that could only serve four people in our office here at Khan Academy, where we have 80 or 90 folks working, you can imagine that cake's going to be a rival good. It's also a scarce good because many more people are going to want that cake than the amount of cake we have.

But when you look at what the definition of a rival good is, every time I eat the whole cake, that's going to limit other people's ability to use it. Economists will sometimes create a spectrum of how rivalrous a good is.

So for example, let me draw a spectrum right over here. So on this line, on the left-hand side, I will call this highly rivalrous, which is they'll actually use that word, but I'll just call this rival goods. Then at the other extreme here, I'll say non-rival, non-rival good. At the left end, it's pretty easy to come up with a bunch of rival goods. If you're living in a place where housing is tight, where all of the housing is taken up, housing is often a rival good. I live in the San Francisco Bay Area, and when a house goes on rent, you'll have multiple people who are competing for that house, or if it's going for sale.

So when one person gets it and gets to live there, well, that's going to make it hard for other people to use it. You could imagine, you know, land in a lot of urban areas is a rival good. You could imagine something like, you know, a cake, especially if there's not a lot of cake to go around at a birthday party.

Now, what would be the other extreme? What would be a non-rival good? Well, there are very few perfectly non-rival goods, but there are things that are close to it because, at least relative to where people are trying to use it today, it seems like there's almost an unlimited supply of it. One example might be something that's close. I'm not going to put it all the way at the end; I'm going to put air, air to breathe on Earth.

Now, right now it's a non-rival good. When I take a deep breath, it doesn't make it hard for you to take another simultaneous deep breath. And actually, let me put a little qualifier here: simultaneously. That's actually a key qualifier for a rival good. So for example, a hammer is also a rival good because if I'm using it right now, it becomes very hard for you to use it simultaneously.

Now, as I mentioned, air to breathe, if I take a deep breath right now, it doesn't make it any harder for you to take a deep breath. But if you take an extreme circumstance, let's say that if we were in a closed room with a limited supply of oxygen, well then the air might become something closer to a rival good.

So let me put it this way: air to breathe outside—well, here I'll put air in airtight, let me put oxygen in an airtight container or airtight room. Oxygen in an airtight room, or maybe a room that is running out of oxygen, well then every time I take a breath, it's going to make it harder for you to take a breath and vice versa.

There's other things like, well, roads are rival goods, especially if we're talking about rush hour. So let me put this right over here. So let's call this the roads during rush hour. Roads during rush hour, the more people that are on the roads, it's going to make it harder for other people to use it simultaneously. It will get all this traffic; people won't even be able to get on the highway because there's so much gridlock.

But then you could imagine roads in the middle of the night are non-rival goods. If I decide to take a drive at three in the morning on most highways, it doesn't make it any harder for another person to take a drive on that highway simultaneously. So let me put it over here: roads at 3 a.m. in most places is closer to being a non-rival good.

So I will leave you there. These are ideas that we're going to keep revisiting in economics, but it's good to have a sense of what they mean, and then it'll inform how we think about allocating these scarce goods amongst folks and thinking about how we allocate these rival goods amongst various parties.