Externalities in Business Economics and Oil Industry Essay

Externalities in Business Economics and Oil Industry - Essay Example 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.