Assignment: Externalities and the Environment  Income Distribution and Poverty

Question One

Variable production technology happens when the externality generated at a specific rate can be influenced by altering the production process. For instance, if producing using electricity is found to cause emissions that are harmful to humans and the environment, then it can be solved by a fixed solution, which is reducing electricity production (McEachern, 2016). On the other hand, fixed-production technology occurs when the output and generation of externalities is fixed regardless of any changes. Altering the production process to achieve similar production outcomes under relatively different conditions falls under variable production technology (McEachern, 2016). For example, pollution by poisonous gases emitted during the production process can be combated by altering the fuel mix to ensure gases emitted are less dangerous to plant, animal, and human life. The social benefit of government involvement in setting a goal to reduce the marginal cost of pollution to zero in industries with fixed-production technology would be cleaner air and a safe environment. Therefore, the government should intervene to save consumers from harmful gas emissions (Legros & Newman, 2014). Although the marginal social cost of reducing greenhouse gas emissions relies on the marginal social benefit of reducing emissions, the government can influence the adherence of firms in industries that employ fixed-production technology. Yes. The government should consider setting goals and objectives for firms in industries that use variable-production technology for the benefit of society.

Question Two

According to McEachern (2016), the Lorenz curve “shows the percentage of total income received by any given percentage of households when incomes are arrayed from smallest to largest”. Graphical representation of the curve shows that uneven distribution is responsible for the curve pulling down and away from the equal distribution line. On this subject, the curve can be used to compare the distribution of income among households. Equal distribution is achieved when the percentage of income is distributed equally to a similar percentage of households (McEachern, 2016). The Lorenz curve in Exhibit 2 on page 387 presents data drawn from 1980 and 2010. It shows that differences in the number of hours, days, or months an individual is employed accounts for differences in income received. The top 20 percent of families from the curve in Exhibit 2 received 43.7 percent of the income, which is higher than the 56.3 percent received by the 80 percent (McEachern, 2016). It is essential to acknowledge that the number of working individuals in a family determines income. In this regard, the bottom 20 percent of families in the exhibit have more income because of the higher chances of them working. Other factors determining the household income are job experience, level of education/competence, as well as, job skills/ability (Caicedo, Lucas Jr., & Rossi-Hansberg, 2016). 

References

Caicedo, S., Lucas Jr, R. E., & Rossi-Hansberg, E. (2016). Learning, career paths, and the distribution of wages (No. w22151). National Bureau of Economic Research.

Legros, P., & Newman, A. F. (2014). Contracts, ownership, and industrial organization: Past and future. The Journal of Law, Economics, & Organization, 30(suppl_1), i82-i117.

McEachern, W. A. (2016). Economics: A contemporary introduction. Cengage Learning.