Introduction
Economics can be defined as a branch of social science which involves satisfaction of unlimited needs with scarce resources. It entails analysis of trade by use of intuitive graphs and mathematical elements. Economics is a field of science because of the presence of uniform laws guiding it and as a social science it studies human behavior and the choices they make. It is essentially divided into two macroeconomics and microeconomics. Macroeconomics is the branch that studies large scale economics. It concerns itself with how industries and consumers’ functions at a national or international levels. Microeconomics, on the other hand, deals with small scale economics at individual and industry level.
This particular article articulates economic principles useful for the market operations. The paper shall, therefore, canvass the principle issues that arise from the context of the free gas that comes at a cost in the Venezuelan case. Some of the principles succinctly enunciated include the following.
Government interference can improve market outcomes
Market failure occurs when resources are not allocated efficiently. Government plays a key role in the economy and it can greatly improve market outcomes. Its interference will not only enhance efficiency but also promote equity. Government policy can be useful during times of market failure. The newly elected Venezuelan president should ensure his government comes up with policies to handle the current market failure. Government must dispense with its role as the neutral player in the market with its central concern being the promotion of fairness in the market. In addition, government may play its role as distributor and competitor in the market by engaging in supply and distribution of the product in question.
People respond to incentives
An incentive is something that encourages one to do something. Rational people make decisions by carrying out a cost and benefit analysis for example when the price of a good raises consumers will buy less of it while producers will allocate more resources to the production of the good as they will benefit more. The cost of gasoline should be raised. This will reduce the rate of its consumption hence reduce its rate of exhaustion and also increase its market value. The would essentially be intended to contain the overruns in the market that occasionally characterize free and near free commodities a phenomenal otherwise called the tragedy of the commons.
Country’s standard of living is dependent on its production
Productivity refers to the amount of goods and services manufactured by a country. High productivity equals to high standards of living. Policy makers need to raise productivity in order to boost living standards. The relationship between the productivity and the standards of living should be considered in the context of the growth of the economy. The laborers’ high productivity would grow the economy in turn resulting into a higher GDP that can sustain higher standards of living. The Venezuelan case should abide by the same economic model by raising the productivity of its laborers.
People face trade offs
There is nothing that comes absolutely free. One has to give up something in order to acquire another. However, the Venezuelan citizens trading in oil seem to be benefiting on a silver platter. Some of the initiatives that the government could take would be increasing the revenue accrued from oil. As a result, the prices of the fuel will increase tremendously; the amount of gasoline consumption will reduce and the revenue collected by the government can be used to boost the economy in other sectors. The same would necessarily contain the flipside of free gas. That is, the black market that develops and thrives from the loopholes occasioned by the traditional system. The status quo must be upset in order to introduce positive changes in the Venezuelan economy.
The cost of something is what you give up to get it
People tend to compare costs and benefits of alternative courses as people face trade-offs. If the producers in Venezuela spend more on paying taxes to the government for the oil the market price will increase in turn reducing consumption.
Trade can make someone better off
Unlike other competitions where there is a loser and winner, trade is a mutually beneficial relationship. It allows countries to specialize. Venezuela should enforce strict laws which will discourage smuggling and instead promote export of its gasoline to other states.
The supply and demand curves and its effects on the prices of the commodities
Markets are a good way to improve economic outcomes
The market force can do what no individuals can manage. No country is able to produce all the resources. At one point they need to import from other states. Venezuela should create a market for its oil to help boost its economy. If it can export its oil to other states it will benefit from importation of commodities it cannot produce boosting its economy.
Rational people tend to think within the margin
Thinking within ones margin means that one is trying to get the best result from what they have. If efficiently utilized and maximized, oil could bring the government of Venezuela and its people great returns.
Works Cited
Gonzalez, Angel. "Almost Free Gas Comes at A Cost." Wall Street Journal 12 April 2013.
