ECONOMIC EXTERNALITIES

Economic Externalities

Economic Externalities

Introduction

The economy of a country provides the sophisticated measures of its growth. It involves the effects of costs, investments and other injections into the economy to identify the rate of growth and recession. A whole economic cycle exists for measuring the depression and growth of economy and provides measures for its success. The estimate of GDP, managing imports and exports, and other economic features are the fundamental characteristics of an active economy.

The occurring of externalities is the common aspect in all, primary, secondary and tertiary sectors of the economy. These externalities can be either positive or negative i.e. they can harm the economy but can improve it too. This essay will discuss and elaborate upon the economic effects of externalities connected with oil production and distribution.

Externalities

The term 'externalities' exists in the field of economics and plays an important role in explaining the theories of economic growth. Externalities pertain to spill over or third party affects which arise from the utilization or production of goods and services for which there is no suitable compensation paid. Thus, an externality is the cost or the benefit, which is transferred on to the public or general society irrespective of prices and demands. There are two types of externalities: Negative externality refers to the adverse costs which the society has to bear; while a positive externality is the benefit which is transferred to the society by producers and asserts good impact. Therefore, the concept of negative externality cannot be thought of as harmful only; it also poses advantages for the society and its people. (Patricia, 2011)

The graph above illustrates the concept of negative externality occurring in the economy.

In every kind of production, the externalities are involved in both, positive and negative way. The production and distribution of oil also incurs some externalities, which have to be borne by the society and individuals. The production of oil and its distribution can put a negative effect on the economy and environment of any country. (Lauren, 2010)

Oil is extracted from the tunnels and is processed in industries and refineries. The smoke coming out from its chimneys causes hazards to the environment of the adjacent places and throughout. This environmental pollution can be a big cause of diseases and put adverse affects on all the living things around it. There is possibly no benefit that the society might get from the refining of oil; however, its products and by-products are very beneficial for and consumed by the society.

Many countries like the Southeast Asian regions are prone to all kind of environmental pollutions like haze and acid rain. Then, most of the developing countries also rely on the consumption of fossil fuels which appear as a negative externality to the environment around it. The energy production from fossil fuel contributes towards the creation of greenhouse gasses associated with climatic change. The costs of such concerns include the loss of coastal land, change in climatic condition, causes of floods and draughts and even dramatic ...