Question

Please describe the two-fold manner in which an economy demonstrates its purpose in addressing the issue of scarcity.

Answer 1

Scarcity is one of the basic concerns in economics. The issue of scarceness implies we have to decide 'how' & 'what' to manufacture from limited resources. It implies there’s a continual opportunity cost involved in economic decision-making.

Economics resolves the issue of scarceness by placing a greater price on scarce products. The high price dissuades demand & fosters corporations to develop alternatives.

If we take a product such as oil. Its reserves are limited; there’s a scarceness of the raw material. As we utilize the oil reserves, its supply will begin to diminish.

If there's a scarceness of a product the supply will be declining, & this causes the level of price to increase. In a free market, this augmenting price acts as a sign & thus demand for the product reduces (movement along the demand curve). Additionally, the greater price of the product provides incentives for corporations to-

• Search for alternative sources of the product
• Look for substitutes , for example, solar panel vehicles.
• If we’re unable to obtain substitutes to oil, then we would have to react by utilizing less transport. Persons would cut down on transatlantic air travel & make lesser trips.

In the short run, price elasticity for demand is low . Persons with petrol automobiles, need to keep purchasing petrol. But, over time, persons may purchase electric automobiles / bicycles, thus, the demand for petrol diminishes. Price elasticity for demand is greater over time.

Thus, in a free market economy, there are incentives for the market processes to tackle the concern of scarcity.