ScarcityScarcity is arguably the preeminent motivation for both human action and human choice. D.W. MacKenzie puts it this way in his article in The Free Market 21, no. 2 (February 2003): "Scarcity forces us to choose, and it is choice that defines cost. As James Buchanan stated so clearly in his book Cost and Choice the true cost of any chosen alternative is that which we would have taken in its place. Cost is inconceivable when no alternative exists. In any instance when we have but one alternative, we give up nothing in choosing it. Therefore, there is no cost."
Wikipedia saidScarcity is the fundamental economic problem of having seemingly unlimited human wants and needs in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs. Additionally, scarcity implies that not all of society's goals can be pursued at the same time; trade-offs are made of one good against others. In an influential 1932 essay, Lionel Robbins defined economics as "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses."
What heck does all this mean? How can water be scarce? I learned in geography class about the gazillions of tons of natural resources lying around, how can this be scarcity? Tell us about the scarcity of mosquitoes around the campfire again.
Paraphrased from Murray Rothbard saidAll means are scarce, i.e., limited with respect to the ends that they could possibly serve. If the means are in unlimited abundance, then they need not serve as the object of attention of any human action. For example, air in most situations is in unlimited abundance. It is therefore not a means, not a good, and is not employed as a means to the fulfillment of ends. It need not be allocated, as time is, to the satisfaction of the more important ends, since it is sufficiently abundant for all human requirements. Air, then, though indispensable, is not a means, but a general condition of human action and human welfare.
Secondly, these scarce means must be allocated by the actor to serve certain ends and leave other ends unsatisfied. This act of choice may be called economizing the means to serve the most desired ends.
Murray N. Rothbard. "2. First Implications of the Concept" Chapter 1-Fundamentals in Human Action, Man, Economy and State, online edition
For me, the easiest way to begin to grasp this idea was to equate the word scarcity with the word end as in finish. Things with an end, in the economic sense things with a supply less than infinite, defines the scarcity boundaries. Within this framework we have varying degrees of scarcity, varying degrees of available supply. Within this sub framework we have varying degrees of 'readily available supply', 'available supply' and 'gotta work hard at it' supply. Available supply of a resource that we have no method or manner of extracting and/or utilizing does not count, it's moot since it can't be used anyway.
Scarcity in economic terms refers to the availability of goods to be used as means to obtain one's ends. Important to note here that scarcity does not just refer to the availability of raw materials…it's the entire shabang. If no one produced scissors, scarcity. If I can't simply retrieve whatever type of scissors I need/want at that moment from my stock at hand, scarcity. It's meal time: limit of fully prepared options to consume at that moment, scarcity, and so on.
If everything that each individual needed and desired was available in consumable form simply for the asking/taking, there would be no reason for any human action beyond the asking. Therefore all would be valued equally and nothing would have any cost associated with it.
This however is obviously not the case on our planet.
A little deeper:
Let's start with air. For the most part air is available to all humans in abundance. In some cases, while the air may not be the cleanest for example, the individual breathing it will not perish in a few minutes as one would without any air at all. Air is part of a complex nature cycle so, short of having all the components of the cycle and all human ability to create breathable air instantaneously removed/forgotten, thinking about air in a finite boundary sense is not what most humans do; we really don't know the limits. This makes air not a scarce commodity, not a means, instead a general condition of human action, welfare and existence. Example here of scarcity and value with regards to environment: a human on the moon or underwater does have a scarcity of air thus turning it into a means with value attached to it. Additionally, economically speaking, these three examples of air are considered different products from each other even if their chemical makeups may be the same.
Next let's look at water. While it may appear on the surface that since our planet is about +70% covered in water, trillions and trillions of litres, it too would be a general condition of human welfare. Closer inspection however reveals that much of the water is undrinkable in its nature given form, it's salty and harmful to humans. Outside of municipal water supplies, most folks do not have a readily available supply of drinking water. Nature given consumable water is not readily available: ask any desert or pole dweller for example. All of this makes water a scarce commodity, a good, a means and we will assign value to it as well as make choices based upon that valuation.
Third, food. In a great many cases, food is also not readily available in consumable form to large numbers of the population of our planet. If environmentally possible, it must be grown, tended to, harvested, processed and transported before consumption. Scarcity.
Fourthly, raw materials. Again, for the most part, raw materials must be located, extracted and processed before they have any usability for humans. Steel for example is not just lying around ready to be picked up for use.
Fifthly: different geographic areas have different nature given availability. Tropical fruit is not available in the northern climates, water not readily available in the dessert climates and so on. Degree of scarcity of many of the different raw materials is dependant on geographic location.
Lastly but certainly not leastly: time. Since humans have a limited lifespan, time is a scarce commodity as well. If lifespan were unlimited, the valuations and choices a person makes would be vastly different and really no reflection of our current reality. This limited lifespan also helps to formulate an individual's time preference. Human's tend to prefer, well, pretty much everything, sooner rather than later. Where an end sits on the time line between sooner and later is its time preference. Time preference also ties into rates of interest, touched on in a later section.