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Scarcity

Terminology

Q_need: Total quantity need (or desire) of a good. It includes the demand already satisfied (and not on sale) and the total demand ( Q_absolute_demand) which includes the demand which can not be satisfied due to the lack a money of the economic actors.

Q_absolute_demand: Total demand unsatisfied which includes the demand which will never be satisfied due to dissuade price of the item for the consumer and the demand which will be satisfied ( Q_demand )

Q_offert: Total offer of a product

Q_demand: Total demand, which will be satisfied. It is a temporary demand, which will be satisfied, as the price is not dissuasive to the consumer. This is the demand defined in the economical books.

Q_demand < Q_absolute_demand except if Q_offert > Q_absolute_demand where the price will fall such as Q_demand = Q_absolute_demand.

 

Q_existing: The existing quantity of a good which includes what is on sell or not.

  

The concept of scarcity

In order to differentiate good in relation to the market, I will create the concept of "scarcity", the inelastic goods are often "abundant"  goods which had filled up the market whereas those of type B are "scarce" goods.

The measurement of scarcity of good A is defined by the formula:

Scarcity_A = (Q_need_A - Q_ existance _A) / Q_existance_A  (1)

 

As Q_need_A = Q_absolute_demand_A + Q_ existance_A  - Q_offer_A (2)

Then

(1) + (2) => Scarcity_A = ( Q_absolute_demand_A -  Q_ offert_A) / Q_ existance _A

 

The abundance of A is defined by

 Abundance_A = - Scarcity_A

 

The effect of offer and demand on scarcity can be described at follow:

If Q_offert_A > Q_absolute_demand_A than all the demand is satisfied and Q_absolute_demand_A =Q_demand_A and  Scarcity_A  < 0 ( Abundance_A > 0)

 

If Q_offert_A < Q_absolute_demand_A than  Scarcity_A  > 0

 

The preceding definition implies the following remarks. If there is a complete balance between the offer and demand, goods have a scarcity equal to zero.

The consequence of differences in scarcity between goods A and B is that if A has a scarcity higher than B. A can always be exchanged easily against B whereas B is exchanged against A only sporadically.

The owner of a scarce good is in an advantageous position compared to the owner of an abundant good. In possessing a scarce good, he has the constant possibility to acquire the abundant good with exchanging the scarce good against the abundant good. The individuals will so prefer to possess scarce goods to abundant one. Thus, an individual will have the tendency to exchange scarce abundant goods against scarce ones at each occasion even if he does not present need for the scarce good. In a economy with only these two goods, the scarce good will become a reserve of value in other term a currency.

 

Scarcity in the free market economy

The free market theory stipulates that in a frictionless economy, a balance between offer and demand tends to be established so the scarcity of the goods tends to zero. The economic actors are motivated to adapt themselves in order to produce the scarce goods. Thus, it is supposed that the population is flexible and ready to change of job according to the economic requirements.

Let take the example of one of the most dynamic economy of the world: the United States. People keep their job for an average of 3 years. The scarcity of the goods tends more quickly towards zero than in the less flexible economy. The economic rule is that a person who works on goods with negative scarcity is victim of unemployment (or part time employment) and seeks to produce goods with a positive scarcity.

In less flexible economy as continental Europe, the fear of unemployment makes that the people are keen to keep their job at all price even if this work produces goods with a negative scarcity. Fear of unemployment is a blocking phenomenon, which explains why the differences in scarcity between the goods remain.

  

Scarcity of competence

In our industrial world, two thirds of the cost of industrial goods is the work of people. Thus, the main limitation to produce a good is the lack of competent people to produce them. So, a value of scarcity could be attributed to the competence of the workforce such as:

Scarcity_CompetenceA = (Q_absolute_demand_CompetenceA - Q_absolute_offert_CompetenceA) / Q_existance_CompetenceA

In a flexible and open economy, people adapt their competencies in order to escape from unemployment or to get a better salary. Thus, the limit of competence of the individuals is their skill and motivation.

In less flexible economy, companies ask for diploma or the their recruitment is too arbitrary or too high compared to the position offer. There is also job protection and the companies (or the organization) might be forced to keep useless competencies. Employees have also less motivation to learn more scarce competence to secure our position in the society. The organization of the society restricts the mobility of the population. And so, there is a lot of inefficiency in the allocation of the competencies of people in the society.  

In a free market economy, individuals are the main economical actors. On behalf of their mobility, their dynamism and their sense of risk, they have the capacity to adapt themselves and to change of work in order to produce goods with a higher scarcity. They will so profit of the unbalanced between the offer and demand. As scarcity is relative to one another, the differential of scarcity tend to be reduce such as the unemployment tends to zero.

European countries have a lot of social restrictions. Thus, it exists of very significant variation of scarcity between individuals. In such context, a liberal policy cannot be sufficient to make the rate from unemployment falls.

  

 

 

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Copyright 2001

Author: Hector Archytas

 

 

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