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Scarcity Principle

The Scarcity Principle, like other principles of economics, comes from the principles of psychology and behavioral sciences. As per the simplest definition, it states that any commodity gains economic value if it is scarce i.e. not enough to fulfill the demand. This is regardless of the actual importance of that commodity. The principle, therefore, suggests that the price of the commodity which is available in lower quantity than needed should be higher.

When Scarcity Principle is applied to the prices of commodities high in demand and low in supply, consumers conduct their own cost-benefit analysis in order to understand whether the value lies in purchasing or not. This will limit the purchase of the commodity to the demographic that can afford the higher prices, therefore, creating a balance between the demand and supply.

A Generic Example of Scarcity

A simple example that should explain how the principle applies is to take ‘air’ as a commodity. Despite being extremely important, air has no economic value. In order to make air valuable, it must be polluted enough to make pure air scarce. Not that people will buy pure air, they will be paying a higher price for consuming pure air because they will have to spend on purifiers. The pure air will then have a high economic value.

In addition to the principle of scarcity, there are two more principles used to create economic balance and manage resource in a more efficient manner; the principles of efficiency and sovereignty. Like scarcity principles, these two are also borrowed from the principles of psychology and human behavior.


Further Reading


Beyond scarcity: a reappraisal of the theory of the monetary circuit
link.springer.com [PDF]
… 1. Marxian economics … His effort to dislodge Carey ex- plains the tone of his duly famous appraisal of the prospects for economic development in India, which he wrote for the Tribune … This theoretical process in- tegrates his analysis of scarcity into his theoretical analysis of crises …

The 'principle of scarcity', pension policy and growthThe 'principle of scarcity', pension policy and growth
www.tandfonline.com [PDF]
… 1. Marxian economics … His effort to dislodge Carey ex- plains the tone of his duly famous appraisal of the prospects for economic development in India, which he wrote for the Tribune … This theoretical process in- tegrates his analysis of scarcity into his theoretical analysis of crises …

Preserving natural capital in a world of uncertainty and scarce financial resourcesPreserving natural capital in a world of uncertainty and scarce financial resources
www.tandfonline.com [PDF]
… 1. Marxian economics … His effort to dislodge Carey ex- plains the tone of his duly famous appraisal of the prospects for economic development in India, which he wrote for the Tribune … This theoretical process in- tegrates his analysis of scarcity into his theoretical analysis of crises …

The expected failure of the European Economic and Monetary Union: A false money against the real economyThe expected failure of the European Economic and Monetary Union: A false money against the real economy
www.jstor.org [PDF]
… 1. Marxian economics … His effort to dislodge Carey ex- plains the tone of his duly famous appraisal of the prospects for economic development in India, which he wrote for the Tribune … This theoretical process in- tegrates his analysis of scarcity into his theoretical analysis of crises …

Economies of dying: The moralization of economic scarcity in US hospice careEconomies of dying: The moralization of economic scarcity in US hospice care
journals.sagepub.com [PDF]
… 1. Marxian economics … His effort to dislodge Carey ex- plains the tone of his duly famous appraisal of the prospects for economic development in India, which he wrote for the Tribune … This theoretical process in- tegrates his analysis of scarcity into his theoretical analysis of crises …

Safe asset scarcity and aggregate demandSafe asset scarcity and aggregate demand
www.aeaweb.org [PDF]
… 1. Marxian economics … His effort to dislodge Carey ex- plains the tone of his duly famous appraisal of the prospects for economic development in India, which he wrote for the Tribune … This theoretical process in- tegrates his analysis of scarcity into his theoretical analysis of crises …

Transformation of the resource scarcity principle in increasing return economicsTransformation of the resource scarcity principle in increasing return economics
core.ac.uk [PDF]
… 1. Marxian economics … His effort to dislodge Carey ex- plains the tone of his duly famous appraisal of the prospects for economic development in India, which he wrote for the Tribune … This theoretical process in- tegrates his analysis of scarcity into his theoretical analysis of crises …

Scarce capital and Soviet doctrineScarce capital and Soviet doctrine
academic.oup.com [PDF]
… 1. Marxian economics … His effort to dislodge Carey ex- plains the tone of his duly famous appraisal of the prospects for economic development in India, which he wrote for the Tribune … This theoretical process in- tegrates his analysis of scarcity into his theoretical analysis of crises …



Q&A About Scarcity Principle


What is the Scarcity Principle?

The Scarcity Principle states that any commodity gains economic value if it is scarce.

What are two social psychology principles that work with scarcity?

Two social psychology principles working with scarcity are social proof and cognitive bias.

How do you make air valuable?

Pollute it enough so that pure air becomes scarce.

How does social proof work with scarcity?

Social proof is one contributing factor to the effectiveness of scarcity because if a product is sold out or inventory is extremely low, humans interpret this as popularity and therefore increase its value.

What are some examples of how scarcity principle applies to commodities?

Air, water, and food are all examples of how scarcity principle applies to commodities.

Why can't air be valuable even though it's extremely important?

Because there is no shortage or pollution in the air.