DEFINITION: The term “scarcity” refers to a situation in which the supply of a good is insufficient relative to the demand.

ETYMOLOGY: The noun “scarcity” and the related adjective “scarce” derive, via Middle French, from the Old North French adjective escars.

Escars is believed to derive from excarpsus, a Vulgar Latin deformation of the classical Latin past participle, excerptus, of the verb excerpo, excerpere, meaning “to pick out” or “to separate.”

Excerpo, in turn, is composed of the preposition ex, meaning “from” or “out of,” and the verb carpo, carpere, meaning “to pluck,” “to select,” “to choose,” “to separate,” or “to divide.”

USAGE: Scarcity is a fundamental concept of economic theory. This is because it refers to one of the fundamental phenomena governing human action and human life more generally.

Let us unpack that claim.

First, it is necessary to appreciate that scarcity is a relative concept. This is because a good can only be “scarce” if it is valued in the first place and according to the consensus subjective theory of value, the value of a thing derives from the subjective preferences of consumers.

On the other hand, there are (at least) two kinds of value-relativity that must be distinguished.

First, there are the preferences that consumers would have for certain goods, if all else were equal, but which might well change under different circumstances.

For example, consumer Y might have a distinct preference for ice cream, but if the price of gasoline goes up, one might be prepared to go without it. In other words, ice cream has a value for consumer Y only relative to cheap gasoline.

Let us call this type of relative value “derived value.”

In contrast to derived values, there are preferences that consumers would have for certain goods under almost any conceivable set of circumstances.

For example, consumer Y will have an equal preference for clean water no matter what the price of gasoline happens to be.

The value is still relative. It is relative to consumer Y’s preference.

It is just that consumer X and consumer Z and, indeed, all other imaginable consumers are likely to share this same preference.

The reason that all consumers will share this preference is that it is relative to human nature itself—the need that all human beings have for water in order to sustain life.

Let us call this type of relative value “basic value.”

The existence of basic values is a direct result of human materiality, or finitude.

That is the reason why scarcity is one of the most fundamental concepts of economic science.

Of course, most goods are not basic; they are derived.

For these types of goods, the concept of scarcity is still central to economic thinking. In fact, it is presupposed by the fundamental economic concepts of supply and demand.

Which brings us back to our original definition of “scarcity”: any situation in which the supply of a good does not meet the demand for it.