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| | Free market competition handles issues of scarcity extremely well, because it can find lower-cost substitutes over time, which drives down the costs to the public. For example, cheaper and better plastic was used instead of these metals during that period. | | Free market competition handles issues of scarcity extremely well, because it can find lower-cost substitutes over time, which drives down the costs to the public. For example, cheaper and better plastic was used instead of these metals during that period. |
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| − | Beware of fake scarcity as a way of increasing price. The "collectors' edition," the "limited offers," and the "only one left," are all slogans designed to create the appearance of scarcity in order to create higher prices. People want things they think are scarce and limited in supply, such as gold, and are willing to pay more for it. | + | Beware of fake scarcity as a way of increasing price. The "collectors' edition," the "limited offers," and the "only one left," are all slogans designed to create the appearance of scarcity in order to create higher prices. People want things they '''''think''''' are scarce and limited in supply, such as gold, and are willing to pay more for it. Another example of an exaggeration of scarcity is when someone spends more time and money looking for something he lost -- because he exaggerates its value -- than the item costs to buy new. The lost item becomes very scarce in the mind of the person looking for it, but its real value is usually much less than that person thinks. |
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| − | Note how the mind can exaggerate scarcity. If something is not very scarce, like a single dollar bill or even food in America, then why people spend so much time worrying about it? Beware a false exaggeration of scarcity. The next time you get to an ice cream store just after it closed and feel the aggravation of not obtaining what you wanted, remind yourself that while ice cream is scarce by definition in economics (after all, people do pay for it), it is not very scarce and you really did not need that ice cream cone anyway! Another example of an exaggeration of scarcity is when someone spends more time and money looking for something he lost -- because he exaggerates its value -- than the item costs to buy again.
| + | One of the most scarce things in the world is an original, perfect copy of the Gutenberg Bible - there are only 21 in existence today.<ref>The Gutenberg Bible was the Latin Vulgate.</ref> Because it is so scarce, it is very valuable. But this is also an example of the mind exaggerating the significance of scarcity. Anyone can read and benefit from the Bible for free on the internet, or at a Bible study group. The owners of the scarce Gutenberg Bible probably never benefit from it by actually studying it. Owing a very scarce item does not guarantee any benefit from it. |
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| − | One of the most scarce things in the world is an original, perfect copy of the Gutenberg Bible - there are only 21 in existence today.<ref>The Gutenberg Bible was the Latin Vulgate.</ref> Because it is so scarce, it is very valuable. But this is also an example of the mind exaggerating the significance of scarcity. Anyone can read and benefit from the Bible for free on the internet, or at a Bible study group. The owners of the scarce Gutenberg Bible probably never benefit from it by actually studying it. Having wealth does not guarantee any benefit from it. | |
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| | ==Transaction Costs== | | ==Transaction Costs== |