Exploring the Scarcity Principle and Its Role in Decision Making

This essay elucidates the scarcity principle, a fundamental concept in economics, which arises from the imbalance between unlimited human wants and limited resources. It highlights how scarcity necessitates choices and trade-offs, influencing decision-making processes at individual, corporate, and governmental levels. The essay discusses the role of scarcity in price determination, resource allocation, and the concept of opportunity cost, emphasizing that rational choices are essential for efficient resource utilization. Furthermore, it explores how scarcity, whether of time or money, can lead to anxiety and potentially suboptimal decisions. The analysis underscores that scarcity is a universal challenge, impacting everyone and requiring careful consideration of priorities and future implications when making choices. Desklib offers this and many other resources for students.

Running Head: BUSINESS ECONOMICS
Business Economics
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BUSINESS ECONOMICS
The principle of scarcity is one of the basic principles of economics. The scarcity
principle indicates a situation in which high demand of a associating with a limited supply lead
to a misbalance between supply and demand and desired equilibrium. The idea is the foundation
of the subject economics. Economics is often considered as study of resources and focus at
optimal allocation of resources to fulfill desire of its people.
The principle of scarcity applied to various economic concepts. In theory of price
determination, the principle refers to the idea that price of the scarce good should increase until
the balance between demand and supply and associated equilibrium is reached. The high price
ends up with the availability of the good to only those have high affordability (Bergstrom &
Randall, 2016). In case of scarcity of necessity like grain then common people will be unable to
get their basic need. Hence, resources should be allocated optimally and should ensure that basic
needs are fulfilled.
Scarcity plays an important role in behavior of choice. It is one of the central focus of
economics to make optimum choice aligned with limited resources. If resources were unlimited
then there would be no need of the study of economics and neither choices needs to be made
regarding use of scare resources (Xenos, 2017). Scarcity arises from unlimited wants of human
against limited resources. Choice has to be made between two alternative demand leading to a
trade off in economics.
Existence of scarcity forces people to make choice among their various needs. Rational
choice needs to be made to use the limited resources efficiently. In order to choose one good,
some other goods need to forgo. This is known as opportunity cost. Trade off not only exists
between two goods but also between two present and future periods (Tietenberg & Lewis, 2016).

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If choice is made in favor of high consumption today, then some future consumption will be
forgone.
Scarcity thus limits the capacity to make choices. In the decision-making process,
scarcity plays a vital role. Either lack of money or lack of time results in anxiety. This ultimately
leads to poor decision making. When there is scarcity of time, people tend to give more
weightage on goods of priority. For this, they need to postpone consumption of some other
goods. The delaying consumption might result in worsening situation (Daoud, 2018). When
people have scarcity of money then they chose urgent needs. This involve ignorance of
consumption of some other important things. This comes along with a burden of cost in future.
It is not that only poor people faces the problem of scarcity. Every people in society gone
through the problem of scarcity while making decision. Government faces the problem of limited
budget. This leads to the choice problem in form of whether to provide good education or health
care system to its people. People in their daily life needs to take decision regarding how to divide
limited income to satisfy their needs.

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Reference list
Bergstrom, J. C., & Randall, A. (2016). Resource economics: an economic approach to natural
resource and environmental policy. Edward Elgar Publishing.
Daoud, A. (2018). Unifying Studies of Scarcity, Abundance, and Sufficiency. Ecological
Economics, 147, 208-217.
Tietenberg, T. H., & Lewis, L. (2016). Environmental and natural resource economics.
Routledge.
Xenos, N. (2017). Scarcity and modernity. Routledge.