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Global Economic Challenges

Global Economic Challenges

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

Global Economic Challenges Water scarcity StudySmarterWater 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.

Global Economic Challenges Solar panels StudySmarterSolar 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.

  1. 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.
  2. Pollution fees are penalties paid by businesses as a consequence of the pollution caused by their business activities.
  3. 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.

Frequently Asked Questions about Global Economic Challenges

Global economic challenges are economic challenges the world faces as a result of resource scarcity. 

The main global economic challenges are economic growth, demand for resources, and pollution.

An example of an economic challenge is population growth that exceeds the available resources.

An economic challenge is a difficult choice that results from resource scarcity.

The economic challenges of the 21st century include global population growth, the demand for resources, and pollution.

Final Global Economic Challenges Quiz

Question

What is population growth?

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Population growth is the increase in the number of people in a given area

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What is a census?

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A census is the official count of the population in the country.

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What are the 3 factors that affect population growth?

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The three factors that affect population growth are fertility rate, life expectancy, and net migration. 

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What are the two types of population growth?

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Exponential and logistic growth.

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What is the fertility rate?

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The fertility rate is the number of births that 1,000 women are expected to go through in their lifetime.

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What is life expectancy?

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Life expectancy is the average lifespan that a person will reach.


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What is the net immigration rate?

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The net immigration rate is the total change in population from people moving in and out of the country.


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What do demographers study?

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Demographers study the growth, density, and other characteristics of the population

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True or False: population can cause positive AND negative effects on the economy?

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True

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True or False: the fertility rate is more important to population growth than the net immigration rate.

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False

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Which of the following is a positive economic outcome of population growth?

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More access to labor

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Which of the following is a negative economic outcome of population growth?

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Pollution

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In the United States, how often does the census occur?

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10 years

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What is pollution?

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Pollution is the contamination of natural resources due to the leakage or disposal of hazardous and toxic materials.

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What is a pollutant?

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pollutant is a substance such as smoke or fumes that poison or damage the natural environment and its resources.

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What is an example of air pollution?

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Examples of air pollution are smog, car exhaust, oil refineries, and wild fires.

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What is considered water pollution?

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All 

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Give an example of land pollution.

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An example of land pollution is the illegal dumping of waste and trash.

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What is meant by cheaper production cost being an incentive to pollute?

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If a firm can cut production costs by dumping their waste into rivers or burying it in pits, then this incentivizes those firms to pollute rather than disposing of their waste properly. 

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What is acid rain?

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Acid rain is rainwater that has been mixed with acids like sulfur dioxide and nitrogen oxide and chemicals like gasoline fumes in the atmosphere. It damages vegetation and waterways.

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How can sewage runoff happen?

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When storm drains become clogged or sewer systems become overwhelmed they overflow and the waste water finds its way into the nearest body of water.

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What are 3 economic controls for pollution?

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3 economic controls are legislative standards, pollution fees, and tradeable pollution permits.

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How do legislative standards remedy pollution?

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Legislative standards set a maximum limit of emissions that can be produced. Once that standard has been set, firms must meet it to be able to continue production.

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A pollution permit would cost a company $300, and the cost of reducing its pollution is $365. Should the firm keep polluting and purchase more permits or should they reduce their pollution?

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From a profit standpoint, it is more profitable for the company to keep polluting because the cost of the permit is lower than the cost of reducing pollution. 

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Why are low pollution taxes and fees ineffective?

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Pollution taxes and fees must be high enough to where it is more profitable for firms to reduce their emissions rather than pay the pollution fees.

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Why does poor health resulting from pollution affect production?

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It affects production because an unhealthy workforce cannot perform at the same level of production as a healthy one when people have to call out sick or are less efficient.

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How can pollution affect agriculture?

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Pollution can shrink agricultural yields because dirty air reduces a plant's ability to absorb light properly and develop into a high-yielding crop meaning the farmer's harvest is less profitable.

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Which of the following is an example of a pollutant in a lake?

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Oxygen

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What is the demand for resources?

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our ability to recognize that we need to use energy resources conservatively and optimize our use of natural resources

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What is derived demand?

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When the demand for a good increases because of the demand for an intermediate good or service.

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What are renewable resources?

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Resources that can be restored

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What are nonrenewable resources?

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Resources that cannot be restored

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What are the determinants of demand for resources?

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Technology, human resources, and input costs

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What are the types of natural resources?

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Hydropower, biomass, solar, and wind

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What are the types of energy resources?

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Oil, natural gas, coal, and nuclear energy

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What is the main difference between renewable and nonrenewable resources?

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Renewable resources can be replenished

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True or False: Renewable resource consumption has been increasing in the United States.

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True

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True or False: Nuclear energy is a low cost option to fossil fuels.

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False

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Which of the following is not a renewable energy source?

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Natural Gas

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Which of the following is not a nonrenewable energy resource?

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Biomass

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Which energy source is the most prominent?

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Oil

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How will technology improvements change the demand for resources?

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It will increase

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True or False: Increased demand for cars will also increase the demand for oil.

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True

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What is the fundamental economic problem the world faces?

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Scarcity is the world's fundamental economic problem.

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What are global economic challenges?

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Global economic challenges are economic challenges the world faces as a result of resource scarcity.

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What are economic incentives?

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Economic incentives are the benefits associated with carrying out a particular action

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What are the main factors that affect the global economy?

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The main factors that affect the global economy are population growth, the demand for resources, and pollution.

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What is population growth?

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Population growth refers to the rate at which the population increases.

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What are renewable resources?

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Renewable resources are the resources that are replenished after use and can be used again in the future.

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What are non-renewable resources?

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Non-renewable resources are the resources that are exhausted after use.

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