In an ideal consumerist world, none of the resources or supply would be scarce, however then there would be no market, as the supply and resource for a product is endless the absence of scarcity would significantly decrease the value of a product. A market exists in all countries, although these can operate in various ways.
There are three basic types of market that exist in the world today, most countries can be classified into one of these although some maybe heading towards another category, as illustrated in (fig.1).
A free economy market is where all decisions are taken my individual consumers and firms. This is not the case for many countries, although the U.S.A and China are gradually heading toward it. At the other end of the spectrum is a centrally planned economic system. All decisions are centralised to being taken by the government, similar to communist Russia. In between both of those what is known as a mixed economy. In this type of economy, some decisions are made by the government but also by consumers and firms.
There are many problems in each of these economic systems that are related to macroeconomics (business as a whole; such as inflations recession and unemployment) and microeconomics (individual parts of the economy; such as supply and demand and the individual firms and services). Each of these problems must be somehow overcome by the parties involves, a decision need to be made that suits that particular type of economic system.
The main problem with a centralised economic system is that it is very hard to make justified decisions, due to this being centralised, the needs of the people may not be met. This would make it hard to react in changes in needs, which would slow the economy down. One reason that communism failed in Russia is due to the type of economic system it was using.
By using this type of economic system, the country makes what it thinks the people of the country need, however in a country that has a free economy or mixed economy the power is more in the hands of the people. This, itself can bring its own problems. It can be very difficult in some fields of the economy to asses the actual wants and needs of the public, due to changes in fashion, lifestyle and technology. From the point of view of a firm, other factors can prove to be a problem, changes in interest rates among other macroeconomic factors, which will affect the way a business operates.
Scarcity can be the result of a macroeconomic problem, no matter what economic system a country uses. In order for a countries economy to run well, a reasonable balance needs to be found between demand and aggregate supply.
In order to combat such issues as inflation, balance of trade deficits, recession and unemployment, the government will introduce either a demand side policy, which aims to increase the level of demand therefore the level of output and prices. On the other hand, a supply side policy tries to alter the aggregate supply.
The government makes these alterations in order to improve or maintain the level of the economy. However, this can be difficult for firms that run under a mixed or free economy, as these decisions ultimately affect the output of a business predictions need to be made about how to run the business. If these decisions are not properly approached, or firms make a poor decision then firms may face microeconomic problems which can lead to scarcity. Similarly is a government makes a poor decision on how to balance the economy, this will affect the entire economy of the country which can lead to more severe form of scarcity.
There are two main factors that cause scarcity, unlimited human wants exceeding the output, and factors related to macroeconomics. In order to combat scarcity society has to look closely how to deal with these issues, which is the job of economists.
Bibliography:
Economics for Business (John Sloman and Mark Sutcliffe)
Business Economics (Roger Perman and John Scouller)
