Externalities in Business Economics and Oil Industry - Essay Example

BUSINESS ECONOMICSBusiness EconomicsScarcity in economics refers to a situation whereby human wants for certain goods and services are unlimited, and the means of meeting this wants is limited. People have an infinite desire for goods and services against a limited availability of the resources to meet these desires (Porter and Smith, 2006, p.123). The consumption of oil experiences scarcity that can be well explained in terms of demand and supply. The use of oil cuts across various sectors of the economy and hence its demand is quite high.

The increased demand against a low supply due to the scarce availability of the product has led to the scarcity of oil in the market. The demand for oil is unlimited where the supply is limited. Consequently, the demand has continued to exceed the supply (Cashin, 2012, p.48).Externalities in economics refer to effects the consumption of a product or service has to third parties. It is also known as spill-over (Hanson, 1974, p.39). The consumption of oil is known to have externalities in that it causes environmental pollution.

The gases emitted by vehicles and from industries are known to be harmful to the environment. The pollution has resulted in diseases to human beings and has caused climatic changes. The changes in climate have had far reaching impacts on the society by causing droughts which have subjected people to poverty and hunger (Hidden costs of energy, 2010, p.70).The government has a role to play in curbing the externalities resulting from the consumption of oil. First of all the government can compel the huge consumers of oil to try and use green energy that is less harmful to the environment.

Moreover, they should place a fee on the large consumers of oil who pollute the environment in order to aid the third parties affected (Climate change, 2014, p.18).ReferencesCashin, P 2012, The differential effects of oil demand and supply shocks on the global economy. Washington, D.C.: International Monetary Fund.Climate change 2014 mitigation of climate change 2014, IPCC, Geneva, Switzerland.Hanson, J 1974, A dictionary of economics and commerce ([4th ed.), Macdonald and Evans, London.Hidden costs of energy unpriced consequences of energy production and use.

2010, National Academies Press, Washington (D.C.). Porter, K & Smith, P, 2006, Leadership and management for HR professionals ([3rd ed.), Butterworth-Heinemann, Oxford: