The Scarcity Principle and Its Implications

Running head: THE SCARCITY PRINCIPLE AND ITS IMPLICATIONS
THE SCARCITY PRUINCIPLE AND ITS IMPLICATIONS
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1THE SCARCITY PRINCIPLE AND ITS IMPLICATIONS
The chief problem, faced by a country, is its limited resource. By the scarcity
principle theory, a country tries to fulfil its entire demand with its limited amount of
recourses. Due to scarce amount of recourses, there is always a difference between total
amount of demand and total amount of supply (Baumol & Blinder, 2015). As a result, price
of scarce factors are always remain high until it reaches to an equilibrium level. This
equilibrium level indicates certain level, where total market demand and total market supply
equate with each other.
The production possibility curve can explain the concept of scarcity resources. When
a country is producing only two goods with its limited resources then this curve can explain
the amount of possible outcome of that country.
Figure 1: Production possibility curve of an economy
Source: (created by author)