You may already know a product like chocolate is made with ingredients, like cocoa, that are imported. But have you ever took the time to think about what exactly goes into making your favorite chocolate bar? That chocolate bar came from a series of international connections between suppliers and buyers globally. Therefore, whatever economic challenges exist affect all parties globally. For example, a shortage of fuel can affect the transportation of cocoa, which will then affect the importation of cocoa and the production of chocolate bars. We're here to discuss such global economic challenges! Interested? Then continue on!
World Economic Problems and Solutions
Not all world economic problems have solutions. In economics, the main problem we seek to solve is scarcity. This is about finding ways for the limited resources we have to satisfy our unlimited wants. This is also the fundamental economic problem of the world. As human beings continue to increase in number, our wants also continue to increase. However, resources remain limited, and this means that we must find solutions to the world's economic problem of scarcity.
Scarcity is the world's fundamental economic problem.
Global economic challenges are economic challenges the world faces as a result of resource scarcity.
Scarcity is experienced all over the world, regardless of how advanced a country is. Countries all over the world experience shortages in food, energy, and other resources, especially as their population continues to increase. As a solution to such global economic challenges, economic incentives are used. In this sense, economic incentives are the benefits (or opportunity costs) of contributing to solving the global economic challenges. In other words, it is what you give up when you engage in activities that contribute to the global economic challenge of scarcity.
Economic incentives are the benefits associated with a particular economic action
Water scarcity, pixabay
Economic challenges example
Let's look at a simple example of how population growth poses an economic challenge.
Let's consider a country with a population of 2 million. If there are only enough resources to provide national health insurance for this population, an increase in the population means that some people will not be covered by the health insurance provided by the government.
The example above shows that the pressure on the available resources increases with each increase in population. Especially, considering that most natural resources used today are not renewable, population growth speeds up the depletion of such natural resources.
Factors Affecting Global Economy
The main factors affecting the global economy are population growth, the demand for resources, and pollution. These make up the main global economic challenges today!
Global economic challenges of the 21st century
The fundamental global economic challenge is scarcity, but the world experiences this scarcity through several means. These are the global economic challenges of the 21st century. They include global population growth, the demand for resources, and pollution. Let's talk about each one of these now!
Population Growth
Population growth refers to the rate at which the population increases. As the population of the world increases, resource availability does not increase accordingly, and this leads to even worse scarcity since the demand for resources has increased. This makes global population growth a global economic challenge because the pressure on the available resources keeps increasing, intensifying the global economic challenge of scarcity.
Population growth refers to the rate at which the population increases
Demand For Resources
The world faces a constant need for resources. Considering that resources are limited, the demand for resources is one of the economic challenges of the 21st century. There are two main types of resources globally, and these are renewable resources and non-renewable resources. Renewable resources are the resources that are replenished after use and can be used again in the future. On the other hand, non-renewable resources are the resources that are exhausted after use.
Renewable resources are the resources that are replenished after use and can be used again in the future.
Non-renewable resources are the resources that are exhausted after use.
The sources of renewable energy are hydropower, biomass, solar energy, and wind energy. Hydropower refers to energy generated by moving water. This is what the U.S. uses in general. Biomass refers to energy generated from waste. Typically, biomass is from plant waste, municipal solid waste, or animal waste. Ethanol is one of the popular biomass fuels and is used as fuel for some vehicles. Solar energy is the energy generated from the sun, whereas wind energy is the energy generated from the wind.
Solar panels, pixabay
On the other hand, fossil fuels are the world's main non-renewable resource. The fossil fuels used by the world include oil, natural gas, and coal.
These resources are mined in areas of the world that are rich in fossil fuel deposits. Recently, nuclear energy has joined the list of non-renewable resources used in the world. This is energy generated through nuclear reactors, and it comes with high risks, as contamination from nuclear energy can cause long-lasting health effects.
Typically, societies want to rely more on renewable resources, and less on the non-renewable resources.
Pollution
Pollution occurs when the environment is contaminated by poisonous substances. This means that any release of harmful substances into the air, water, or soil amounts to pollution.
Pollution is the contamination of the environment through the release of poisonous substances.
Today, the release of greenhouse gases, industrial waste, and household waste are some common ways through which we pollute the environment.
New Approaches to Economic Challenges
Today, there is the need for modern or new approaches to economic challenges. The main approach to addressing global economic challenges is through economic incentives. So, what are these incentives? Let's discuss them.
New Approaches to Economic Challenges: Population Growth
Having children in developed countries can be very expensive. The expenses come from the medical bills, healthcare costs, and cost of education. Therefore, parents in such countries are incentivized to have as few children as possible. However, this is different in developing countries, where children are seen as assets. This, in addition to the low costs of childbirth and overall medical expenses, encourages parents in such countries to have as many children as they can.
New Approaches to Economic Challenges: Demand For Resources
The demand for resources can be addressed either through civic responsibility appeals or through price changes. Civic responsibility appeals are an approach to reason with people to reduce their reliance on non-renewable resources for the common environmental good. On the other hand, price changes are an approach to limit people's reliance on non-renewable resources by making their prices less attractive.
Civic responsibility appeals are an approach to reason with people to reduce their reliance on non-renewable resources for the common environmental good
Price changes are an approach to limit people's reliance on non-renewable resources by making their prices less attractive.
People respond more to changes in prices than to civic responsibility appeals. For example, if the price of non-renewable energy resources increases, the demand for non-renewable energy resources will decrease, and people will begin to explore more affordable, renewable options!
Notice the law of demand here! You should read our article on Demand to understand how it works.
New Approaches to Economic Challenges: Pollution
Pollution takes place because people find it profitable to pollute. If it costs more to pollute than not to, people will consider environmentally friendly alternatives. Therefore, pollution can be addressed by taking away the incentives to pollute. The approaches here include legislated standards, pollution fees, and tradable pollution permits. Let's look at them now.
- Legislated standards are standards set by the governments to ensure that businesses maintain a required level of environmental purity. For example, businesses can be required to maintain a given level of carbon emissions and water purity associated with their waste disposal.
- Pollution fees are penalties paid by businesses as a consequence of the pollution caused by their business activities.
- Tradable pollution permits are permits acquired by certain public utilities which allows them to emit controlled levels of certain pollutants to reduce other pollutants in the air. This means that while pollutants are being released into the atmosphere, they're doing more good than harm.
Global Economic Challenges - Key takeaways
- Scarcity is the fundamental global economic challenge.
- Economic incentives are the benefits associated with a particular economic action.
- To address global economic challenges, incentives are used.
- The global economic challenges include population growth, demand for resources, and pollution.
- The global economic challenges are approached by eliminating the incentives associated with them.
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