Economics 3220 Lecture Notes - Exponential Growth, Aggregate Supply, Aggregate Demand

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5 Feb 2013
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We focus on emissions or pollution levels and the level of damage they cause due to exposure to pollution with a marginal damage (md) function. And we look at the cost of reducing or abating emissions to a target or safe level with a marginal abatement cost (mac) function. We develop a model based on these two functions: md-mac model similar to the aggregate demand= aggregate supply model or mwtp/mb=mc model in chpt 4. Marginal abatement cost (mac) is the change in tac for a unit change in e. That is mac= td/ e: for linear decreasing tac curve, mac curve is horizontal, for exponentially decreasing tac curve, mac curve is a downward sloping line. Pollution control targets are usually specified at regional, provincial or national level. Individuals firm"s mac is appropriate for firm elvel pollution control but aggregate mac should be used for industry specific pollution reduction targets as it satisfies the equal marginal principle.

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