What Is Scarcity in Economics?

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If you understand what scarcity does to product prices, you can predict price increases in resources, wages and real estate. Once you have an idea about the possible direction of prices and wages, you can decide what to invest in, what kind of job to seek and what kinds of property to purchase.

Scarcity of Resources

Businesses need resources to operate. So do cities, towns, households and individuals. If resources become scarce, competition for those resources increases. That means prices go up, because people are willing to pay more to beat the competition in getting resources. Extreme scarcity can mean there are not enough resources at any price, and an economy can collapse as a result.

Labor Scarcity

When companies have to compete for employees, wages tend to rise. Scarcity of labor can mean better pay for employees, but if labor becomes so scarce that companies can't operate, businesses may collapse. This would create more scarcity as products and services decline.

Tangible Items that Become Scarce

Real estate, commodities and supplies can become scarce. If you invest in scarce tangible items, you can expect prices of those items to go up and your income from investing to increase as a result.