Question

1. Explain, using economic theory, why it would not be desirable to eliminate every bit of pollution causing substances (e.g. toxic chemicals) from the world. Explain what economic criteria should be used to answer the question of, ‘how much pollution should we clean up?’

Answer 1

It would not be profitable economically to remove every bit of pollution. The firm has to reduce its output level to zero if it wants to reduce every bit of pollution. Society would be totally debarred from the facility of output. Thus, it would not be profitable or viable to operate at this point.

When an output is produced, it meets the needs of people. Thus it has utility or benefits for people at large. On the other hands, when output is produced, the pollution level also rises. Thus, equilibrium would be established where Marginal benefits from the production of an extra unit of output and Marginal damage from extra unit of output are equal.

Marginal Benefit = Marginal Damage.

If a firm moves above this point, the Marginal cost or damage would be larger than marginal benefits. On the other side, if Marginal benefits are larger than marginal damage, then it would be profitable to increase output level until the marginal benefit becomes equal to marginal damage.