Suppose that you and a friend are discussing the effects of pollution on society. Your friend argues that the best level of emissions for society as a whole is zero. Your friend argues that zero emissions would cause zero environmental damage to society and would, therefore, be optimal.
a) Explain using the tools of economic analysis from class, show that the optimal level of emissions is generally not zero. Show how the optimal level of emissions is determined for any given industry on a graph. Carefully explain how the optimal level of emissions is determined. Why is this level optimal?
b) On your graph, clearly label the total amount of damages to society from this level of emissions. On your graph, clearly label the total amount of abatement cost to society from this level of emissions.
c) Under what rare circumstance would your friend’s argument be correct, that the optimal level of emissions is zero? What must be true in this case? Explain. Show this scenario on a graph. What is the total damages to society at this zero level of pollution?
Answer:
a) Optimal level of pollution is not zero. The optimal level of pollution can be found out with the help of economic decision rule of equating the marginal benefit to the marginal cost.
When a negative externality is present, there is a cost imposed on a third party not involved in the production or consumption of the good. Examples of the negative externalities include various forms of pollution, such as air pollution from factories or power plants, water pollution, noise pollution.
Economist has argued that it is not efficient to reduce pollution to zero. The cost of this reduction would probably exceed the benefits. Waterways and the atmosphere have a natural capacity to assimilate at least some pollution with no associated ill-effects on the environment or humans. To not benefit from this natural assimilative capacity would be wasteful. Moreover, one person's pollution may be another person's consumption.
for question a and b Please see the figure.
c)
Economist has argued that it is not efficient to reduce pollution to zero. The cost of this reduction would probably exceed the benefits. Waterways and the atmosphere have a natural capacity to assimilate at least some pollution with no associated ill-effects on the environment or humans. To not benefit from this natural assimilative capacity would be wasteful. Moreover, one person's pollution may be another person's consumption.
Suppose that you and a friend are discussing the effects of pollution on society. Your friend...
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