Tuesday, October 28, 2008

How can there be scarcity and at the same time a surplus in a market?

There can be scarcity and at the same time a surplus in the market simply because the two terms do not necessarily relate. Scarcity suggests that a resource or a good is limited. All resources and goods are limited because their amounts are finite. Compare this to a surplus, which suggests that the supply of a resource or good is greater than its demand. Thus a certain amount of the resource or good, in excess of its demand, is not consumed. That which is not consumed is a surplus, yet it still may be scarce. An example would be mink coats. The demand for them has contracted (tough economic conditions, political correctness, fear of PETA activists throwing red paint, etc.) yet there is supply in excess of that demand, a surplus. However, in spite of a surplus, mink coats are still scarce because there are a finite number of minks, firms producing mink coats, and retailers offering them for sale.

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