Thursday, May 13, 2010

Scarcity (5) - Zero Prices

Some goods are abundant. There is more available than people want. When a good is abundant, anyone can get more it at no cost, so the sign of economic abundance is a price of zero. No one bothers producing more of an abundant good, because they will not get a return.

Air is a good example of an abundant good is air. There is more air available than people want, so there is not market for air. Air is abundant, so the price is effectively zero.

Water is abundant in most places, so it is usually available for free. However, as the population has increased and uses for water have proliferated, it has become scarce in many places and people now have to pay for it. Markets for water are emerging.

If everything were available in abundance, markets would disappear. In the idealised paradise described post (3), markets cannot exist because the price of every good and service is zero. Nothing has any cost, so everything is free.

The continuing existence of markets for many goods and services is evidence that scarcity still exists. Although we live in a prosperous society, we have not yet reached the place, where scarcity has disappeared. In a developed economy, basic food and clothing are fairly abundant, so their prices have fallen quite low, but new goods and services want have been developed that people now want. Although old needs have been well and truly met, new needs have emerged that have not yet been satiated. The existence of prices above zero means that economic scarcity still exists.

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