What does the term 'scarcity' refer to in economics?

Scarcity in economics refers to the limited availability of resources compared to the unlimited wants and needs of people. This means that there are not enough resources, like money, time, or materials, to satisfy everyone's desires. For example, if a town has only a few slices of pizza but many people who want pizza, this creates a situation of scarcity. Because of scarcity, choices must be made about how to allocate resources effectively, which often leads to trade-offs. Understanding scarcity helps us recognize the importance of making decisions about how to use what we have wisely.