ECON 110 Chapter Notes - Chapter 17: Economic Equilibrium, Energy Intensity, Allocative Efficiency

• School: Queen's University
• Department: Economics
• Course: ECON 110
• Professor: Ian James Cromb

Document Summary

Chapter 17 the economic of environmental protection. The socially optimal level of output is at the quantity for which all marginal costs, private plus external, equal the marginal benefit to society: figure 17-1 pg. Internalizing the externality: a process that results in a producer of consumer taking account of a previously external effect. Zero environmental damage is generally not allocatively efficient. Pollution is being abated efficiently when the marginal cost of pollution abatement is the same for all firms. Direct pollution controls are usually inefficient because they do not minimize the total cost of a given amount of pollution abatement. Monitoring and enforcement of direct pollution controls are costly, and this costliness reduces the effectiveness of the controls. Emissions taxes can internalize pollution externalities so that profit-maximizing firms will produce the allocatively efficient amount of pollution abatement. A disadvantage with emission taxes is that information necessary to determine the optimal tax rate is often unavailable.