It means that a particular commodity is not enough in supply for the complete satisfaction of human wants.
Scarcity arises when the supply of a particular commodity is limited in relation to its demand. Scarcity is the central problem in economics.
It dictates that we must answer the three basic questions of allocation. They are:
Ø What to produce?
Ø How to produce?, and
Ø For whom to produce?
By establishing an economic system, we try to find the best solution for the above questions.