Difference between revisions of "Artificial scarcity"

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'''Artificial scarcity''' describes the [[scarcity]] of items even though the technology and [[Economic production|production]] capacity exists to create an abundance.  The term is aptly applied to non-rival resources, i.e. those that do not diminish due to one person's use, although there are other resources which could be categorized as artificially scarce.  The most common causes are [[monopoly]] pricing structures, such as those enabled by [[intellectual property]] rights or by high [[fixed costs]] in a particular marketplace. The inefficiency associated with artificial scarcity is formally known as a [[deadweight loss]].
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[[page type::article]]
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[[thing type::phenomenon]]
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[[thing type::tool]]
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[[category:economics]]
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</hide>
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==About==
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[[Artificial scarcity]] refers to situations in which [[scarcity]] is deliberately created, most commonly in response to a perceived business need. The term is applied to both [[rival goods]] and [[non-rival goods]], but the significance and mechanisms are somewhat different in each case.
  
With nearly all goods, a trade-off occurs when decisions are made about production.  The graph{{which?}} shows the economic anomaly that occurs with artificially scarce products.  Because leather boots consume resources, a trade-off is noticed between running shoes and boots; i.e. in order to produce more boots one has to produce fewer running shoes because of limited resources.  This trade-off is illustrated by a move from P1 to P2 in the Production Possibilities graph on the left.
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For more in-depth discussion of these contexts, see:
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* [[/rival]]
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* [[/non-rival]]
  
With computer software, no significant trade-off occurs.  To produce more of a certain piece of digital information, since virtually no resources are used to copy the information there is no trade-off with the production of other things, like shoes and boots. In essence, problems of artificial scarcity usually arise when a good that was once scarce becomes abundant due to extreme increases in productivity and technology.<ref>{{cite web |url=http://www.automation.com/resources-tools/articles-white-papers/articles-by-jim-pinto/the-problems-of-scarcity-abundance |title=The Problems of Scarcity & Abundance |publisher=Automation.com}}</ref>
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The inefficiency associated with artificial scarcity is formally known as a [[deadweight loss]].
  
{{quote|If you have an apple and I have an apple and we exchange apples then you and I will still each have one apple. But if you have an idea and I have an idea and we exchange these ideas, then each of us will have two ideas.|Phi Kappa Phi Journal<ref>{{cite book |url=http://books.google.com/books?ei=9Fk1TdLGItLpgQfh6eixCw&ct=result&id=wQ_PAAAAMAAJ&dq=%22If+you+have+an+apple+and+I+have+an+apple+and+we+exchange+these+apples+then+you+and+I+will+still+each+have+one+apple.</ref>}}
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==Causes==
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One argument is that this arrangement has come about because [[capitalism]] and the [[profit]] motive create a situation where it is easier to profit from creating scarcity than from meeting unmet needs<ref name=ws1>http://www.worldsocialism.org/spgb/apr98/scarcity.html Artificial scarcity</ref>.
  
== Economic actions that create artificial scarcity ==
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The argument goes as follows:
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* Producers are primarily motivated by profit &ndash; not to satisfy wants or needs, or even to provide [[economic value]].
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* Profit is maximized by satisfying [[effective demand]] through selling at the highest possible price.
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* When all needs are met, effective demand is low.
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* When effective demand is low, prices are also low (due to the law of [[supply and demand]]).
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* Therefore: profit can be increased by artificially limiting availability (through any of several mechanisms), thereby increasing effective demand.
  
* [[Cartels]]
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==Mechanisms==
* [[Copyright]] - Grants authors a limited monopoly to copy and distribute their works.
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Common mechanisms for creating or enforcing such scarcity include:
  
These actions are used to artificially prevent [[market failure]], artificially preserve profits for producers, or artificially reduce costs for a certain group.
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* {{wp/alt|monopoly}} pricing structures, such as those enabled by [[intellectual property]] rights or by high fixed costs in a particular marketplace.
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* {{wp/alt|cartel|cartels}}
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* {{wp/alt|guild|guilds}}
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* [[copyright]] - Grants authors a limited monopoly to copy and distribute their works.
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* Hoarding by traders and middlemen
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* Black market activities
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* Insider trading
  
== See also ==
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All these activities are beneficial for the producer who gets a high profit margin by increasing prices due to deficiency in the supply of goods. Ultimately it is the final consumer who bears the burden of not being able to obtain the amount of goods he requires and also being unable to get them at a reasonable price.
{{Portal|Economics}}
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*[[Post scarcity]]
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These actions are used to artificially prevent [[market failure]], artificially preserve profits for producers, or artificially reduce costs for a certain group. A state of complete abundance will crash any [[market economy]].
*[[Disney Vault]]
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==Related==
*[[Criticism of intellectual property]]
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* {{wp/alt|Club good}}
*[[Club good]]
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* {{wp/alt|Criticism of intellectual property}}
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* {{wp/alt|Disney Vault}}
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* {{wp/alt|Post-scarcity economy}}
  
 
==References==
 
==References==
{{Reflist}}
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<references/>
 
 
{{DEFAULTSORT:Artificial Scarcity}}
 
[[Category:Scarcity]]
 
 
 
 

Latest revision as of 20:04, 27 December 2013

About

Artificial scarcity refers to situations in which scarcity is deliberately created, most commonly in response to a perceived business need. The term is applied to both rival goods and non-rival goods, but the significance and mechanisms are somewhat different in each case.

For more in-depth discussion of these contexts, see:

The inefficiency associated with artificial scarcity is formally known as a deadweight loss.

Causes

One argument is that this arrangement has come about because capitalism and the profit motive create a situation where it is easier to profit from creating scarcity than from meeting unmet needs[1].

The argument goes as follows:

  • Producers are primarily motivated by profit – not to satisfy wants or needs, or even to provide economic value.
  • Profit is maximized by satisfying effective demand through selling at the highest possible price.
  • When all needs are met, effective demand is low.
  • When effective demand is low, prices are also low (due to the law of supply and demand).
  • Therefore: profit can be increased by artificially limiting availability (through any of several mechanisms), thereby increasing effective demand.

Mechanisms

Common mechanisms for creating or enforcing such scarcity include:

  • monopoly [W] pricing structures, such as those enabled by intellectual property rights or by high fixed costs in a particular marketplace.
  • cartels [W]
  • guilds [W]
  • copyright - Grants authors a limited monopoly to copy and distribute their works.
  • Hoarding by traders and middlemen
  • Black market activities
  • Insider trading

All these activities are beneficial for the producer who gets a high profit margin by increasing prices due to deficiency in the supply of goods. Ultimately it is the final consumer who bears the burden of not being able to obtain the amount of goods he requires and also being unable to get them at a reasonable price.

These actions are used to artificially prevent market failure, artificially preserve profits for producers, or artificially reduce costs for a certain group. A state of complete abundance will crash any market economy.

Related

References