Resource Scarcity

The concept of resource scarcity is explored in this short revision video. We focus on water scarcity and water stress.

What is resource scarcity?

Resource scarcity is essentially about current demand for a resource exceeding available supply. But what matters is that this scarcity has potentially huge implications for how we lead our lives and the economic prosperity of communities, countries and regions.

Resource scarcity occurs when demand for a natural resource is greater than the available supply – leading to a decline in the stock of available resources. This can lead to unsustainable growth and a rise in inequality as prices rise making the resource less affordable for those who are least well-off.

Students introducing themselves to economics will become familiar with the different types of factor inputs available to produce (supply) goods and services. These are summarised in this graphic.

At the heart of many economic issues is this point: The economic problem involves decisions about how to make the best use of limited (scarce) resources when not all wants/needs can be fully satisfied.

What are the underlying causes of growing resource scarcity?

1. Demand-induced – High market demand for a scarce resource
2. Supply-induced – supply of a resource is running out over time as extraction rates increase
3. Structural scarcity – due to mismanagement of the resource which leads to a long-term degradation of the resource
4. Absence of effective / affordable substitutes for a scarce resource

Examples of demand-induced scarcity:

• Fast-growing national populations putting pressure on natural resources e.g. water scarcity and water stress in urban areas
• Rising prosperity (shown by higher per capita incomes) leading to increased ownership & use of resource-intensive consumer durables
• Advances in production technologies & economies of scale e.g. which have made mobile devices affordable and adopted globally

Resource scarcity is closely tied to the crucially important issue of sustainable economic growth.

“Damage to ecosystems including forests, grasslands and coral reefs — and the associated loss of biodiversity — could drain nearly $10tn from the global economy by 2050, according to the Global Futures report from the World Wide Fund for Nature (WWF), the conservation group.” (Source: Financial Times, August 2020)