With scarcity, there is a potential for market failure. Causes of scarcityĪnd a combination of the two. Therefore, in a free market, there are incentives for the market mechanisms to deal with the issue of scarcity. However, over time, people may buy electric cars or bicycles, therefore, the demand for petrol falls. People with petrol cars, need to keep buying petrol. In the short-term, demand is price inelastic. People would cut back on transatlantic flights and make fewer trips. If we were unable to find alternatives to oil, then we would have to respond by using less transport.Look for alternative sources of the good e.g.Also, the higher price of the good provides incentives for firms to: In a free market, this rising price acts as a signal and therefore demand for the good falls (movement along the demand curve). If there is a scarcity of a good the supply will be falling, and this causes the price to rise. As we use up oil reserves, the supply of oil will start to fall. The reserves of oil are limited there is a scarcity of the raw material. ![]() How does the free market solve the problem of scarcity? There is a scarcity of available land to build new roads or railways. Many city centres experience congestion – there is a shortage of road space compared to number of road users. If there is a surge in demand for a popular Christmas present, it can cause temporary shortages as demand as greater than supply and it takes time to provide. This causes waiting lists for certain operations. ![]() In any health care system, there are limits on the available supply of doctors and hospital beds. In more recent years, shortages have been focused on particular skilled areas, such as nursing, doctors and engineers In the post-war period, the UK experienced labour shortages – insufficient workers to fill jobs, such as bus drivers. This has led to a shortage of drinking water for both humans and animals.
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