Research Topic: How does the scarcity of a resource such as oil or computer technology, affect your daily life?
Impact of the Scarcity of Resources on the Daily Life
Attaining sustainability in the availability of scarce resources is the principal objective of economic activities. Excessive dependence on oil energy is a primary cause of degradation of natural resources. Resources are components of production; they are used to produce goods (Blinder & Baumol, 2012). Scarcity is the lack of enough resources to produce goods sufficient to satisfy human wants. Scarcity is a fundamental problem of economics (Frank & Bernanke, 2000). The scarcity of key resources affects the production possibilities through its effect on the factors of production including land, capital, entrepreneurship, and labor. The key questions in economics are what, how, and for whom to produce goods and services. Land as a factor of production encompasses all natural resources, including agricultural land, minerals, water, and wildlife. Water, oil, natural gas, phosphorus, coal, and rare earth elements such as scandium are natural land resources that are most drained by the human population. Oil is a scarce natural resource, and hence, is a critical economic resource.
In line with the outlook of the demand side of natural resources, the projections of the increase in global population suggest a rise of 32% from the current 6.9 billion to 9.1 billion in 2050. In addition to population explosion, there is also the effect of the emerging economies such as china, India, and Brazil, which harbor an increasing number of affluent consumers. These emerging economies are heightening the effect of the scarcity of natural resources particularly the demand for energy and protein-rich diets including meat and dairy products. In terms of production, diets that are rich in meat and dairy products are more resource-intensive than other diets. The rising demand for energy creates an arbitrage relationship between food and fuel (Frank & Bernanke, 2000). In line with the relationships discussed, the rising demand for key resources is expected to emerge by the year 2030. For instance, the World Bank projects that the demand for food products will increase by approximately 50% by 2030. In particular, meat-based products will have their demand rising by 85% by the same year. In its 2009 World Energy Outlook, the International Energy Agency projects an annual 1% increase in the demand for oil between now and 2030. The current demand for oil is 85 million barrels per day. Adjusting this for the annual increase in demand, the daily demand for oil in 2030 will be 105 million barrels. Due to its scarcity and its significance in production, oil has an immense impact on the production and prices of basic human needs such as food (Blinder & Baumol, 2012).
Purpose of the Study
This paper examines the impact of scarce resources on the daily life of a person, using oil as a sample scarce resource. The study also explores the solution that has been proposed an alternative source of fuel.
Results and Findings
Experts in the energy industry believe that is on the verge of reaching the peak of global oil extraction (Frank & Bernanke, 2000). Once the world attains the peak of oil production, the world will witness a decline in the easily available supply of oil. The price of fuel will increase drastically. Unprecedented high social, economic, and political costs will result. The increase in the global prices of oil suggests that the energy market has entered a critical period of scarcity. The implications of the scarcity of oil could be significant and far-reaching (Hamilton, 2008). Oil is a critical factor of production. In addition to being a widely utilized consumption product, significance of the use of oil includes transportation and production of other commodities. Oil is a highly traded commodity. In the period between 2007 and 2009, its annual exports averaged USD 1.8 trillion. This translated to almost 10% of the total world exports. The significance of oil in the global trade implies that shifts in the oil market conditions have both a direct and indirect impact on human life through its consequences on inflation, poverty, and external imbalances. A decline in the availability of affordable energy will cause a significant impact on food production and, the cost of transportation of products (Friedman, 2002). The scarcity of oil affects the daily life of a person in the following ways.
Production of Consumer Goods
The rising scarcity of oil will lead to an increase in its price (Hamilton, 2008). Manufacturing costs and distribution of manufactured consumer goods particularly food products are subject to the level of the price of oil (Frank & Bernanke, 2000). This drives up the cost of food production. Food production companies transfer this cost to the consumer. In this respect, the scarcity of products such as oil is felt in the daily life because you have to cope with the rising cost of food, which is a daily need.
Home and Business Energy Use
Many households use gas for their cooking and home heating. Propane gas is used primarily to heat homes. It is a by-product obtained through refinery of oil. Therefore, its price is likely to rise alongside the rise in the price of crude oil.
When gasoline prices increase, commuters, tourism industries, and freight companies all feel the impact (Hamilton, 2008). They start using public transit, taking few road trips in summer vacation, and downsizing vehicles in favor of economy cars. The imminent attainment of the peak in oil production will have a long-term effect on both personal and commercial transport. People will reduce the use of automobiles and seek alternative modes of transportation for their transport needs. People whose localities do not have affordable transport options spend a significant proportion of their disposable income due to the high travel costs incurred (Friedman, 2002).
The principal cause of climate change and global warming is the rising amount of carbon dioxide released through the burning of fossil fuels including natural gas and fuels (Hamilton, 2008). Therefore, global reduction in the production of carbon dioxide involves decreasing the magnitude of petroleum and natural gas usage. From a micro-economic perspective, an individual should make choices among alternatives influenced by the consideration of the shortages in oil supply and sharp increases in price (Blinder & Baumol, 2012). The declining supply of oil causes an individual to reduce usage of oil and gas. Solar energy is an option because it costs less and is under the control of the country that invests in it (Hamilton, 2008). In addition, it produces clean energy and offers a solution to the environmental problem of pollution. However, the problem in developing new sources of energy is that it takes time to develop and may be impossible to accomplish in the near future.
Tremendous costs have already been incurred by means of investment in infrastructure including mining, pipeline, distribution, and transportation. Therefore, coping with the consequences such as high prices of food and transportation requires making individual choices. For instance, it is less costly to travel by train rather than by aircraft. In addition, it is necessary to restrict the frequency of using a personal car, in order to add to the lessening of global carbon emissions (Hamilton, 2008).
In terms of increasing costs of transportation, people may relocate to places that have easy access to efficient public transport services or may move to places which are close to workplaces. Therefore, people may incur high costs of housing because real estate prices may increase to reflect the changes in preference for housing. An alternative may be to use electricity-powered automobiles or those that use energy from biofuels, natural gas, or liquids from goal, but they may have expensive initial cost of purchase. In relation to the problem of food production, it may be fundamental for government authorities through encourage local processing of food products through investment in processing equipment.
The fundamental problem of economics is that resources are scarce while human wants are not (Blinder & Baumol, 2012). Oil is a vital natural resource whose scarcity has a significant impact (Hamilton, 2008). Scarcity has an effect on everyone. First, people have to make choices between alternatives because they cannot access or afford everything they want. Human wants are unlimited, but natural resources are limited. This means that some wants may go unsatisfied. Second, scarcity necessitates a rationing device. This is a mechanism that decides who gets the available quantity of goods. Price is a rationing device. The person that pays the required price gets the resource. Third, due to scarcity, people compete to purchase resources.
Scarce resources affect the daily life of a person through their impact on the factors of production including capital, land, entrepreneurship, and labor. The consequent negative impact on the cost of life necessitates the need to make choices among potential alternatives. This affects transportation, food choices, and home energy use, among other activities that utilize energy from oil. Hydroelectric power and biofuels provide alternative sources of energy that is affordable and environmentally friendly. Therefore, the choice of an alternative to oil-energy must ensure little impact on the environment and affordability. Further research must investigate and quantify the impact of introducing solar energy and other green energy sources that supplement hydro-electric power, in terms of cost reduction and availability of energy.
Blinder, A.S. & Baumol, W.J. “Microeconomics: Principles and Policy (12th ed.)”, Mason, OH: Cengage, 2012
Frank, R & Bernanke, B, “Principles of Microeconomics”, New York, NY: McGraw Hill, 2000
Friedman, L.S. “Microeconomics of Public Policy Analysis”. Princeton, NJ: Princeton University Press, 2002, Retried from http://press.princeton.edu/chapters/s7309.html
Hamilton, JD, “Understanding Crude Oil Prices”, National Bureau of Energy Research, NBER Working Paper No. 14492, 2008. Retrieved from http://www.nber.org/papers/w14492