Introduction
Scarcity clearly demonstrates the typical economic problem where people are required to satisfy unlimited wants using the available finite resources. Everyone in society must make choices on resource utilisation (Hamilton et al., 2019, 534). Family members are supposed to decide if they will spend on fancy vacations or purchase new cars. City councils must choose the issues that will offer more funds in the budgeting process. They may offer more funds to school systems than other departments, such as security departments. Similarly, national governments must decide on the sectors to devote funds. They may devote more funds to safeguarding the environment than to national defence. All the choices for the economic problems have a basis on scarcity, where the critical choice is considered (Hamilton et al., 2019, 536). The exchange and production paradigms are vital in offering insight into how the economic problems in the society are dealing with the scarcity issue. The exchange paradigm is concerned with neoclassical economics, which suggests that individuals are interested in maximising their profit and utility relative to the rational choice theory (Dolderer, Felber & Teitscheid, 2021, 11). The production paradigm involves the decisions made by commercial enterprises in deciding the output quantities they produce as a response to demand. The production theory majorly involves the maximisation of profits by the use of scarce resources to satisfy the needs of the customers. Therefore, the paper is set to discuss that all economic problems can be understood to deal with scarcity by focusing on the fundamental economic paradigms involving the exchange and production paradigms.
The Production Paradigm
The production paradigm assumes that there are people willing to purchase whatever goods will be produced. However, a firm producing the goods can only produce limited quantities of the particular goods since the available scarce resources actualise the production. Suppose a particular organisation utilises land and labour in the production process as the primary resources. In that case, the firm can, at any point in the production process, decrease or increase the quantity of the resources employed relative to the prevailing demand in the market. If the demand increases, an organisation may consider increasing the number of labourers to counter and satisfy the increased demand (Inoua & Smith, 2023, 8). The adjustment in the number of labourers makes labourers a variable factor in the production process. On the other hand, land cannot be adjusted easily, making it a fixed factor in the production process. Thus, scarcity is visualised in how the variable factors of production are adjusted to conform to the demand existing in the market.
The theory of value offers more insight into how scarcity is the sole origin of economic issues. Classical economists believe that the value is different from the price. The natural process is associated with the persistent and systematic forces within a particular region over a given period. Thus, due to scarcity, the prices of goods move towards the natural prices that result from the scarce natural resources in a particular region. Prices are determined by factors such as wages, technology and the level of outputs at a particular point in time. Adam Smith offers a critical explanation of the scarcity concept where a good is abundant in society, such as water; its price tends to align with its natural price, which is generally low. The goods that are in abundance usually have less competition in their acquisition. On the other hand, if a good is less abundant, such as a diamond, it always has a high price due to its scarcity. The procession of diamonds requires intense competition involving buyers and sellers for the willingness of people to pay and be bought (Inoua & Smith, 2023, 25). The high competition often makes such a good have a monopoly value where the purchases are made at the highest possible price.
Scarcity influences free competition in the production process of services and goods. The market price is different between the willingness of the buyers to pay for the maximum prices and the willingness of the buyers to pay for the lowest prices relative to the type and degree of competition in the market. When the supply side has intensified competition, the most efficient and lowest-cost organisations undersell their competitors in the industry, allowing the prices of the goods to be at the lowest prices. The lowest prices conform to the natural prices that develop into free competition in the market, and no organisation is limited to operating in the market. If there is an extreme scarcity of resources, the highest-value purchases outbid the existing buyers in the market, allowing them to access the available units for sale compelling the prices to converge at the maximum point that is often a monopoly price. Thus, according to classical theory, the monopoly is a point where supply in the market is very scarce, and the prices of the services and goods being offered are at the highest possible price (Inoua & Smith, 2023, 28). To some extent, classical competition is illustrated as an outcome of a mature industry where the efficiency and competition of the organisations are so intense that only a few firms survive (Inoua & Smith, 2023, 29).
Exchange Paradigm
The neoclassical theory acknowledges that the market mechanism has properties that are essential for society, where the prices reflect real scarcities that exist in society. The market prices offer more insight into the nature of the available scarce resources and goods (Figueroa, 2019, 55). It is assumed that individuals have resources where the prices of the resources are already defined and cannot be adjusted. The individuals have limitations on their budget that involves the combined goods’ prices. The individuals act rationally to satisfy their satisfaction and profit to the point where the equilibrium is realised. A notable example is a case of natural resources where due to their exhaustible and scarce nature, someone owning the mines will consider selling the natural resources in the mines then the owner will purchase assets. The assets may be turned into financial assets that will continually give returns to the owner. If the extraction marginal cost is assumed to be nil, then the minerals price as a percentage of the prevailing price will be similar to the existing interest rate (Figueroa, 2019, 60). Nevertheless, when the land fertility and resources are indestructible and original, the land will not be depleted. The land will majorly be made scarce due to the high demand that will be advanced due to the high economic growth. The adjustments in the market prices of land will influence its scarcity (Figueroa, 2019, 65).
Leon Waira’s general equilibrium theory focuses on scarcity in a way that is a marginal utility. He suggested that market participants aim to maximise utility under subjective equilibrium, and demand and supply are usually realised at the market equilibrium (Misaki, 2022, 11). The scarcity notion is concerned with the ratio of the absolute supply to the absolute demand, where when one market has excess supply, it is compelled to match it with another market’s excess demand allowing all the involved factors to have a balance. Thus, if producers are involved in a production process, they will consider rationality when responding to adjustments in the interest rates. An increase in rates will make the producers decrease the production quantities, and when they fall, they will increase their production. The former suggests that the rise in the rates makes the available resources that can be used in production scarce. At the same time, the latter demonstrates that enough resources can be used to increase the quantities produced in the production process. Leon Waira adds to the arguments by the classical theorists on scarcity, stating that scarcity is majorly visualised in the production process, where labour has substantial value in the production process due to its capability of being both in limited quantities and valuable in the production process. Classical theorists argue that land labour is scarce when expertise and talent are considered in the production process (Misaki, 2022, 410).
On the contrary, it is false to say that all economic issues are understood to be originating from the scarcity issue. The neoclassical theorem assumes that economic issues are mechanically based rather than their typical entropic nature. All environmental issues do not originate from insufficient property rights or negative externalities. The environmental issues are not microeconomic but rather evolutionary issues that are macro-based. The environmental issue is demonstrated to be composed of the ecological system that determines the survival of human beings (Figueroa, 2019, 66). Thus, economic issues are directly rooted in the evolutionary nature of living organisms. Scarcity is independent as a technical device in classical and neoclassical economics. It is a significant rationale for allocating resources in an inequitable way. The world has sufficient energy, water and food that can effectively satisfy the needs of about nine billion people. The water stress, fuel shortages and famines are not an outcome of the generalised shortages but the authorities’ failures to allocate to people experiencing poverty since they cannot afford the services and goods (Mehta, 2013, xviii). The nature of making scarcity a feature of the resources demonstrates the naturalisation of the societies to offer the poor people their needs and the reluctance of the beneficiaries of power and wealth in eliding the social and equity issues.
Conclusion
In summary, the discussion that all economic problems can be understood to be dealing with scarcity by focusing on the fundamental economic paradigms involving the exchange paradigm and production paradigm is essential in understanding how the economic issues are directly associated with the available scarce resources required to satisfy them. Thus, due to scarcity, the prices of goods move towards the natural prices that result from the scarce natural resources in a particular region. If there is an extreme scarcity of resources, the highest-value purchases outbid the existing buyers in the market, allowing them to access the available units for sale compelling the prices to converge at the maximum point. According to classical theory, a monopoly is a point where supply in the market is very scarce, and the prices of the services and goods offered are at the highest possible price. The scarcity notion is concerned with the ratio of the absolute supply to the absolute demand, where when one market has excess supply, it is compelled to match it with another market’s excess demand. Scarcity should always be addressed to reduce the potential economic issues that adversely affect the well-being of people worldwide.
References
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