Which of the following best defines 'scarcity' in economics?

Scarcity in economics is best defined as the limitation of resources. This concept underscores the fundamental economic problem that arises because resources (such as time, money, labor, and raw materials) are finite, whereas human wants and needs are virtually unlimited. Since we cannot produce enough resources to satisfy all desires, scarcity necessitates decision-making and prioritization in how resources are allocated.

Understanding scarcity is crucial because it shapes much of economic theory, particularly in how goods and services are produced, distributed, and consumed. It leads to trade-offs, wherein choosing one option means giving up another, illustrating the cost of decisions in resource allocation. While other terms may relate to particular aspects of supply and demand dynamics or the evaluation of benefits, they do not capture the essence of scarcity in the same way that the limitation of resources does.