Scarcity is determined by the imbalance between supply and demand, with items only classified as scarce when demand cannot be met. The level of need or requirement for an item determines its value, and resources are not distributed equally. The relationship between scarcity and value has been exploited by some industries, such as the diamond trade.
Scarcity is a relative term that derives its meaning or relevance from the imbalance between supply and demand. That is, there will be no scarcity if the supply is in line with the demand rate for any type of good or service. In this sense, something can only be classified as scarce when there is a demand that cannot be met by the supply rate. Some items are scarce because there is a limited amount of the product that remains constant, while other factors around them influence their level of scarcity, such as land and human population. Other items are needed, but due to their abundance they cannot be labeled as scarce resources, an example of which is air.
It is the level of need, want, or requirement for an item that increases its value and determines the level of demand for the item. For example, crude oil is a naturally occurring commodity and is in high demand across the world for different purposes such as fuel. The demand for oil puts a lot of pressure on a finite or limited resource, which means it increases its value. Another consideration when looking at the concept of scarcity is the fact that resources are not distributed equally across the world, as the same resource may be abundant in one country but absent in another. The application of scarcity here is valid only to the extent that it affects the country without the resource.
Still using the example of crude oil, some countries are naturally abundantly endowed with the resource, which means that it is not a scarce resource for those areas. Given that crude oil is a vital resource for every country in the world, the demand for this commodity is a determinant of its value and also the driver of the disparity between supply and demand. Countries that lack the resource consider it a scarce resource that must be obtained at the expense of a valuable consideration.
The relationship between scarcity and value is one that has been exploited by unscrupulous suppliers and manufacturers for their own profit. For example, this connection can be clearly seen in the diamond industry, where the illusion of scarcity has served to keep the price of diamonds at an astronomically high level relative to what it might be if the real force of supply and demand could naturally occur. This practice is further fueled by the fact that the diamond trade is a monopoly of a highly influential company that determines the majority of the diamond supply.
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