Economics Assessment - Essay Example

Economics Assignment Student’s Name Institutional Affiliation Date Introduction An externality refers to the uncompensated impact of the actions of an individual on a bystander’s wellbeing. In the event that the occurrence of the externality caused by an individual on the wellbeing of the bystander is positive, then that entails a positive externality. On the other hand, the actions may yield negative impacts on the individual thereby giving rise to negative externalities. The case example given by Henry Hazlitt in his book, Economics in One Lesson, portrays two sides of the possible perceptions held by the audience following the decision of the boy to vandalise the window using the brick (Hazlitt, 2010). From the first perception, the audience consider the act of the boy as a business opportunity to the glazier business since the shop owner would have purchase a new glass pane from the industry. However, it is also evident that the act has created zero employment and business since the decision of the shop owner to purchase a new glass prevented him from purchasing the new suit that could have created an employment opportunity in the tailoring business. The paper presents an in-depth analysis of the smoke exhaust from automobiles with regard to its impact on the environment and human beings and the different perceptions held by individuals and concerned organisations about the issue. The Volkswagen and Audi Case It is apparent that the Volkswagen emission scandal has been on the front page of many magazines and newspapers addressing environmental pollution. The fact was evident: Volkswagen had cheated on its emission tests (Hruska, 2015). Additional emission tests conducted on its automobiles revealed that the emissions produced by most of its automobiles surpassed the emission levels stated by the company. According to the US Environmental Protection Agency, the emission levels of the cars were forty times the standard emissions required by the agency (Lu, 2011). The cheat effects of the company have compelled it to recall approximately 11 million cars globally to rectify the issue. However, a third party would have different economic perspectives about the issue. Hazlitt heightens the essence of looking at the unforeseen and hidden consequences of an action rather than concentrating on the immediate consequences of an action. Apparently, focusing on the immediate consequences of the action of the globally recognised automobile company to install software components that display cheating emission results has an immediate impact on the profitability of the company. As a result, prior to looking at the hidden consequences of the action, a good economist should begin with the immediate consequences. Hazlitt also mentions the significance of looking at the effects of the action on all the stakeholder groups rather than a single group with the objective of making proper economic decisions. In a similar manner, it is evident that the action yielded significant losses on the part of the company. The company felt the losses by witnessing reduced demand for its vehicles due to the fear held by customers that the environmental agencies of their various nations would ban their cars from operating on the roads. Reduced demand for the company’s vehicles implies reduced returns and declining profitability on the part of the company. In the event that the company fails to address the issue and restore the confidence of its customers on its automobiles, then the action would result in a loss of employment for the employees of the company. On the other hand, it is also proper for the economist to look at the impact of the action on another group. Considering the rival automobile companies such as Mercedes and BMW that have battled with Volkswagen especially on its Audi brands, customers may opt for the rival products. As a result, the rival companies will record increasing demand for their products at the expense of the declining profits recorded by Volkswagen as the company struggles to address the issue to restore the confidence of its customers. The result is the creation of additional employment opportunities in the rival companies due to the increased demand for their products. From the onset, it is proper to opine that the negative externality creates zero employment. The statement emanates from the fact that the increased employment opportunities witnessed in the rival companies compensates the reduced employment opportunities caused by the externality at Volkswagen. In accordance with Hazlitt’s argument, it is also proper to consider the impact of the action another party; take individuals for instance. It is evident that the continued exposure to diesel exhaust fumes has both short term and long term adverse effects on the health of individuals including death (Chu, 2015). Catarrh is one of the effects of the exhaust fumes to the individuals. Catarrh basically entails the inflammation of the mucous membrane that results in excessive build-up of mucus in the throat and excessive discharge of mucus from the nose. Individuals also suffer from headaches following their exposure to exhaust fumes. There are also reported incidents of asthmatic attacks in the event of exposure to the smoke. Individuals exposed to the exhaust have also reported heavy eye that causes sleeplessness (Ojolo et al., 2011). As noted above, it is evident that there are several negative impacts of smoke exhaust to the health of the individuals. However, an economist would have a different perception towards the health effects of the externality. It bears partial sense for the individual to argue that the externality and its resultant effects on the health of the individuals create employment for the pharmaceutical sector in the affected areas. The additional employment opportunity results from the need for more drugs and medication for heavy eye and sleeplessness, catarrh and headaches. It is apparent that reducing the emissions in the area would reduce complaints about catarrh, sleeplessness and headaches thereby impacting negatively on the pharmaceutical business dealing in such drugs within the area. Rather than creating business for the pharmaceutical company as a result of the increased demand for headache, sleeplessness and catarrh medications, it is also evident that there are other economic aspects that would suffer negatively from the channelling of expenditure to the pharmaceutical sector. One possible economic aspect is the luxury industry. It is apparent that the increased demand for medications strains the available disposable income of the affected individuals thereby preventing them from purchasing secondary and some of the luxury items. The result is zero employment again since the business of secondary and luxury items would witness reduced employment emanating from the reduced demand of its products from the customers that have directed their financial resources towards purchasing medications for catarrh, sleeplessness and headaches, the consequences of the exhaust smoke externality. The analysis has discussed the impact of the externality on the source company, the rival companies and individuals. However, Hazlitt’s argument still insists on the necessity of discovering the economic impact that the occurrence of the externality has on all the parties affected by the act. Hazlitt also recommends that the economist should also look at the long-term effects of the externality rather than devoting all attention to the short term effects only. Based on the argument, it is proper to argue that the exhaust fumes have adverse long-term effects on the environment. Before discussing the effects of exhaust fumes on the environment, it makes sense to understand the specific fumes emitted by burning fossil fuels. The emissions include N2, CO2, O2 and H2O as the major emissions. However, discussions about toxic exhaust emissions focus on CO, NOX, SO2 and O3. The other toxic emissions include HC, Heavy Metals and Diesel PM. The public uproar against such emissions reclines on the fact that the emissions have irreversible and devastating effects on both the environment and human health (Sydbom et al., 2001). Taking into account the harmful emissions that emanate from burning fossil fuels with particular concern to their adverse effects on human health and the environment, it is proper for a good economist to make a decision that does not favour the violation of emission standards. The decision emanates from the fact that the economic employment emanating from the sale of cars and drugs does not match the destruction of the natural environment that turns out to be the habitat of mankind and other living things. Conclusion Global warming, as a long term effect, threatens the destruction of the natural environment. Since the impact is irreversible, coupled with the fact that nothing can compensate the death of individuals caused by their exposure to the harmful emissions, it is proper to argue against the use of cheating emission software in automobiles. The contemporary business world requires all businesses and corporations to exhibit corporate social responsibility and environmental protection as a basic requirement for gaining competitive advantage and attaining customer satisfaction. Based on the view of a good economist, the loss of customers and employment for the Volkswagen Group and its employees respectively implies a consequent gain of customers and employment for the rival companies. Therefore, provided that the rival companies do not violate the emission standards provided by the regulation authorities, the Volkswagen Group should comply with the emission requirements or face the risk of getting kicked out of the market. References Chu, J. (2015). Study: Volkswagen’s emissions cheat to cause 60 premature deaths in the U.S. MIT News. Retrieved from: http://news.mit.edu/2015/volkswagen-emissions-cheat-cause-60-premature-deaths-1029 Hazlitt, H. (2010). Economics in one lesson: The shortest and surest way to understand basic economics. Crown Business. Hruska, J. (2015). VW caught cheating on diesel emissions standards, ordered to recall 500,000 cars. ExtremeTech. Retrieved from: http://www.extremetech.com/extreme/214605-vw-caught-cheating-on-diesel-emmissions-standards-ordered-to-recall-500000-cars LU, J. (2011). Environmental Effects of Vehicle Exhausts, Global and Local Effects: A Comparison between Gasoline and Diesel. Ojolo, S. J., Oke, S. A., Dinrifo, R. R., & Eboda, F. Y. (2007). A survey on the effects of vehicle emissions on human health in Nigeria. JRTPH, 6, 16-23. Sydbom, A., Blomberg, A., Parnia, S., Stenfors, N., Sandström, T., & Dahlen, S. E. (2001). Health effects of diesel exhaust emissions. European Respiratory Journal, 17(4), 733-746. Read More