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