A condition where there is less of something than people would like to have if it cost nothing to buy. Thus this word is used in economics in a relative sense. Most people would say that there were many automobiles about, and that they were hardly scarce in the usual sense of the word; but since there is certainly not enough to give everyone as many automobiles as they would like to have, we can say that they are, relativcly speaking, scarce. Similarly, since the total quantity of goods and services which people would like to have far exceeds the amount which the economy’s resources are capable of producing, we can say that there is a scarcity of resources (even though the economy might have a very large labour force, many factories, etc.). The importance of the existence of scarcity is that it gives rise to a need to allocate the available resources among alternative uses. If this allocation is done through a free market capitalist system rather than through a centralized command economy, then scarcity will necessarily imply positive prices for goods. Air does not have a price because it is not relatively scarce (everyone has as much as they want); food has a price because it requires resources – land, labour, machinery, seed, fertilizer, etc. – which are relatively scarce and could be used to produce other things.
Reference: The Penguin Dictionary og Economics, 3rd edt.