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LAW OF DIMINISHING MARGINAL RETURNS: A principle stating that as more and more of a variable input is combined with a fixed input in short-run production, the marginal product of the variable input eventually declines. This is THE economic principle underlying the analysis of short-run production for a firm. Among a host of other things, it offers an explanation for the upward-sloping market supply curve. How does the law of diminishing marginal returns help us understand supply? The law of supply and the upward-sloping supply curve indicate that a firm needs to receive higher prices to produce and sell larger quantities. Why do they need higher prices?

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SCARCE:

A condition in which a given good or resource is limited relative to its desired uses. This is a special condition of the general condition of scarcity. A scarce good or resource is typically exchanged through markets and carries a positive price.
Most goods, services, resources, and any other commodities that come to mind are scarce. They might be expensive, they might be cheap, they might be abundant, or they might be extremely rare. If they are exchanged in markets, are used to satisfy wants and needs, or play almost any role in the economy, then they are probably scarce. Being scarce means a commodity cannot satisfy all existing wants or needs.

Compared to Scarcity

Being scarce is a special condition of the pervasive problem of scarcity. The two terms are related, but have slightly different meanings. Scarcity means that society is generally faced with unlimited wants and needs, but limited resources. Scarce means that this condition is applied to a particular commodity, that is, the uses of the commodity are limited relative to the amount available.
  • Scarcity is the general condition of unlimited wants and needs, but limited resources, faced by society.

  • Scarce is the specific condition of a limited quantity relative to the desired uses faced by a particular commodity.

What About Free?

The alternative to scarce is free. A free good, service, resource, or other commodity results if the quantity available exceeds the desired use. In other words, there is more than enough to go around, to meet all needs at a zero price, with some left over.

Air is the best example. With few exceptions (sunken submarines, orbiting space vehicles, locked bank vaults) the quantity of air exceeds existing uses. Plenty of air is available. This abundance means that the price is zero and that a market cannot be established. Should anyone attempt to sell the commodity at a positive price, potential buyers can simply acquire the good elsewhere for free.

Compared to Shortage

A market shortage arises if the quantity of a good demanded is greater than the quantity of the good supplied, at a given price. This is a specific condition of the market brought on because the going market price is less than the market-clearing equilibrium price. Having a market shortage is not the same thing as being scarce.

A good or resource is scarce if it is limited relative to the desire use, at a zero price. In other words, there is not enough of the good or resource available to satisfy all uses. A market shortage, in contrast, exists if the current price is below the market clearing price. However, should the price rise, a shortage can quickly disappear. The shortage can even turn into a surplus.

Whether the market for a good has a shortage or surplus is unrelated to being scarce. A scarce good or resource can have a shortage, or a surplus, or neither. In fact, a good or resource is necessarily scarce if it is traded through a market.

<= SAY'S LAWSCARCE GOOD =>


Recommended Citation:

SCARCE, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: January 22, 2018].


Check Out These Related Terms...

     | scarce good | scarce resource | economic resource | free good | free resource | free lunch |


Or For A Little Background...

     | scarcity | allocation | economic good | incentive | limited resources |


And For Further Study...

     | dismal science | economic thinking | opportunity cost | property rights | seven economic rules | three questions of allocation | production possibilities | rationing | production cost |


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