| | Based on our understanding of scarcity, we can now refine our definition of “economics”. “Economics” is the study of ''scarcity''. If there is no scarcity, then everyone has what they want. There is no scarcity of air, so economics does not study the everyday uses of air. But there is a scarcity of land and oil, so we do study how they are bought and sold. | | Based on our understanding of scarcity, we can now refine our definition of “economics”. “Economics” is the study of ''scarcity''. If there is no scarcity, then everyone has what they want. There is no scarcity of air, so economics does not study the everyday uses of air. But there is a scarcity of land and oil, so we do study how they are bought and sold. |
| | There was a famous bet made in 1980 after the liberal Paul Ehrlich claimed that an increase in world population would cause greater scarcity in basic natural resources, such as copper, chromium, nickel, tin, and tungsten. A "classical" (conservative) economist, Julian Simon, predicted that people would seek and find substitutes for scarce resources, such as other materials, and that this would prevent greater scarcity and higher prices. The wager was that the liberal Ehrlich predicted that the price of these metals (also called "commodities") copper, chromium, nickel, tin, and tungsten would increase in price by 1990; the conservative Simon predicted their prices would not increase. | | There was a famous bet made in 1980 after the liberal Paul Ehrlich claimed that an increase in world population would cause greater scarcity in basic natural resources, such as copper, chromium, nickel, tin, and tungsten. A "classical" (conservative) economist, Julian Simon, predicted that people would seek and find substitutes for scarce resources, such as other materials, and that this would prevent greater scarcity and higher prices. The wager was that the liberal Ehrlich predicted that the price of these metals (also called "commodities") copper, chromium, nickel, tin, and tungsten would increase in price by 1990; the conservative Simon predicted their prices would not increase. |
| | 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. |
| | 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. | | 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. |