Scarcity refers to limitations of resources that must be used to achieve an economic objective.
The most basic economic problem is how to allocate scarce resources to achieve an economic objective. We have unlimited wants, but limited resources. Choices must be made. Identifying all of the options and then allocating our scarce resources is fundamental to economic theory. Everyone must make decisions based on limited resources. A student may have to choose between spending time studying or watching television because time is a scarce resource. A business may be forced to choose whether to invest in advertising or new equipment because capital is limited. Scarcity, however, should not be mistaken for poverty. Even the wealthiest individuals and companies deal with scarce resources.
Here is a short video further explaining the concept of scarcity.