Chapter 14 microeconomics

a container producer has no incentive to use recycled materials unless they offer superior

cost efficiency and thus greater profits

the principal advantage of pollution permits is their incentive to minimize the

cost of pollution control

excessive process regulation may raise the costs of environmental protection and discourage

cost-saving innovation

a totally clean environment isn't

economically desirable

government failure

government intervention that fails to improve economic outcomes

95 percent of current air and water pollution could be eliminated by

known and available technology

an emission charge increases private marginal cost and encourages

lower output and cleaner technology

The behavior of profit maximizers is guided by comparisons of revenues and costs, not by philanthropy, aesthetic concerns,

or the welfare of fish

market incentives play a major role in

pollution behavior

people tend to maximize their personal welfare, balancing private benefits against

private costs

the polluter benefits b substantial external costs for

private costs

we won't get clean air unless we spend

resources to get it

pollution abatement can be achieved but only at

significant cost to the pant

when social costs differ from private costs, external costs exist. In face, external costs are equal to the difference between the

social and private costs

to maximize social welfare, we need to equate

social cost to marginal

external costs =

social costs - private costs

whenever external costs exist, a private firm won't allocate its resources and operate its plant in such a way as to maximize

social welfare

efficiency decision

the choice of a production process for any given rate of output

private costs

the costs of an economic activity directly borne by the immediate producer or consumer (excluding externalities)

social costs

the full resource costs of an economic activity, including externalities

opportunity cost

the most desired goods or services that are forgone in order to obtain something else

production decision

the selection of the short-run rate of output (with existing plants and equipment)

if pollution costs are external, firms will produce

too much of a polluting good

Optimal rate of pollution

The rate of pollution that occurs when the marginal social benefit of pollution control equals its marginal social cost

emission charge

a fee imposed on polluters, based on the quantity of pollution

To determine the optimal rate of pollution, we need to compare the marginal social benefits of additional pollution abatement with the marginal social costs of

additional pollution control expenditure

two general strategies for environmental protection:

after market incentives in such a way that they discontinue pollution. by pass market incentives with some form of regulatory intervention

market failure

an imperfection in the market mechanism that prevents optimal outcomes