Does scarcity really results into inflation?

Question

Does scarcity really results into inflation?

Answer 1

It depends.

If the object is in high demand, and there's very little of it (i.e. Nintendo Wii or Sony Playstation 3), then yes, the price will go up.

If the object is scarce and there is very little demand, then it will be dirt cheap, since its taking up shelf space another product may occupy.

Answer 2

For one thing, the word inflation originally meant an increase in money supply, not an increase in prices. The former does not necessarily always lead to the latter, nor is the former the only cause of the latter. There are two basic causes of price inflation, scarcity of supply and overabundance of money. It may be that there are more people who want a product than a manufacturer can supply. Another source of scarcity is cartels and monopolies. Overabundance of money or inflation of the money supply is another factor. Too much money chasing too few goods. Sellers will always try to get as much money as possible for their goods. This is simply natural and you would do the same if you were selling something. You can try tracking inflation in www.viritix.com. One thing about money is that the entire money supply will always buy the entire output of a country. However, when the money supply changes, it takes time for all areas of an economy to adjust to the new money supply.