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Chapter 17

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ECON 110
Ian James Cromb

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. o Figure 17-1 pg. 418 o Figure 17-2 pg. 419  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  Tradable pollution permits: rights to emit specific amounts of specified pollutants that private firms may buy and sell among themselves. The total quantity of permits is set by government policy.  With tradable pollution permits, profit-maximizing firms will reduce pollution until their marginal abatement costs equal the price of pollution permits. The costs of a g
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