Scarcity — Supply and Demand

“The first lesson of economics is scarcity: There is never enough of anything to satisfy all those who want it.” — Thomas Sowell

The Cleveland Cavaliers are charging $4 for a LeBron James bobblehead doll. They have 300 dolls in the store. Unfortunately, you are the 301st person who wants to buy one. Sorry — no bobblehead for you! The supply of bobblehead dolls at $4 is gone. The demand for the dolls was greater than the supply at this price. If 275 people want the dolls, then the demand is 275. If 325 people want the dolls then there is a demand of 325.

Supply is the amount of a good or service that firms are willing and able to provide at various prices in a given time period. Demand is the amount of a good or service that buyers are willing and able to purchase at various prices in a given time period. Put the two together and you get the concept of “supply and demand.” Scarcity is the lack of sufficient resources to produce all the goods and services that people desire. There is a shortage of bobblehead dolls. This is a core concept of economics.

We have three types of resources — natural resources (land), which include minerals, water, trees, etc.; human resources, which are the mental and physical efforts of people; and capital resources, which include man-made items used in production. Each of these resources is limited.

There is an important relationship between supply and demand and the scarcity that is shown in the price of an item. Let’s look at Ohio State football tickets. The stadium holds up to 110,000 people. Tickets sell for $60 at the box office, but generally there are none available to the general public. Some games are so popular that owners of tickets are often willing to sell them. You may find these tickets in newspaper ads or online. What will happen is that those who want tickets will bid up the price in order to get the seats. In some cases, tickets may sell for $1,000. As there are more consumers who want the tickets than there are tickets, the demand will keep pushing up the price.

The reverse is also true. Back to LeBron. He introduced a new type of tennis shoe that everyone wanted (demand), so the stores stocked up. After a time, Shaquille O’Neal introduced new tennis shoes and LeBron’s were not as popular. Stores tried to sell their stock of LeBron’s shoes by reducing the price. Prices will go down when the demand decreases. When you sell something at less than what it cost to produce it, this is called a loss.

Any time an item is not freely available, it is considered scarce. People’s wants are unlimited. We want many, many things. However, the natural, human and capital resources required to provide those wants is limited.