• The scarcity principle is an economic theory that explains the price relationship between dynamic supply and demand.
• According to the scarcity principle, the price of a good, which has low supply and high demand, rises to meet the expected demand.
• Marketers often use the principle to create artificial scarcity for a given product or good—and make it exclusive—in order to generate demand for it.
• According to the scarcity principle, the price for a scarce good should rise until an equilibrium is reached between supply and demand. However, this would result in the restricted exclusion of the good only to those who can afford it.
• In economics, market equilibrium is achieved when supply equals demand.
  • However, the markets are not always in equilibrium due to mismatched levels of supply and demand in the economy.
  • This phenomenon is referred to as disequilibrium. When the supply of a good is greater than the demand for that good, a surplus ensues.
  • This drives down the price of the good.
  • Disequilibrium also occurs when demand for a commodity is higher than the supply of that commodity, leading to scarcity and, thus, higher prices for that product.
• For example, if the market price for wheat goes down, farmers will be less inclined to maintain the equilibrium supply of wheat to the market (since the price may be too low to cover their marginal costs of production). In this case, farmers will supply less wheat to consumers, causing the quantity supplied to fall below the quantity demanded. In a free market, it can be expected that the price will increase to the equilibrium price, as the scarcity of the good forces the price to go up.
• Using the scarcity principle another way:
  • Using psychology people value a good that is scarce rather than a good that is high in demand, so sometimes for goods that are abundant, business people will market them as exclusive with purposefully prices.
  • Most luxury products, such as watches and jewelry, use the scarcity principle to drive sales. Technology companies have also adopted the tactic in order to generate interest in a new product

source: https://www.investopedia.com/terms/s/scarcity-principle.asp#:~:text=Key Takeaways,to meet the expected demand.