Chapter 5: Economics of Pollution. Forms of Pollution Air pollution Water pollution Land contamination Noise pollution

Download Chapter 5: Economics of Pollution. Forms of Pollution Air pollution Water pollution Land contamination Noise pollution

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  • Chapter 5:Economics of Pollution

  • Forms of PollutionAir pollutionWater pollution Land contaminationNoise pollution

  • Sources of PollutionUse of Natural ResourcesProduction of Goods & ServicesConsumption of Goods & Services

  • Sources of Air PollutionCarbon monoxideSulfur dioxidesNitrogen oxidesHydrocarbonsParticulates

  • Reasons for PollutionNo one has or enforces private property rights over the environment being polluted

    The collectively consumed nature of the environment being polluted

  • Costs of PollutionEnvironmental decayLoss of incomeMedical expensesLoss to societyOpportunity costs of pollution control expenditures

  • Economic of PollutionDemandMarginal Social Benefit, MSBMarginal Private Benefit, MPB

    SupplyMarginal Social Cost, MSCMarginal Private Cost, MPC

  • PriceReams per dayMSC911r0r1S = MPCCBADD13Dead-Weight Loss=ABCMSC>MPC: Paper is under-priced, but over-produced

    Effects on the Polluter

  • Effects on the User:

    PriceKilowatt-hours per dayS = MPC0.100.12e0e1MSCCBADDDead-Weight Loss=ABCMPC>MSC: electricity is under-supplied, but over-priced0.08

  • Policies of Pollution ControlMoral suasionEducationRecyclingMarket solutionLaw-suitesPollution rightsGovernment solutionTaxesSubsidiesRegulations

  • Economics of Pollution ControlThe optimal amount of pollution control is achieved where its MSB = MSC

    If taxation is used to control pollution, the optimal level of tax must be set to make MSB = MSC

  • Dollar per unitPollution controlMSBT2T*C*MSB=MSCBT1MSCMSC>MSBMSB>MSCPollution Tax

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