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Economic of Polution

The document discusses the economics of pollution and optimal pollution levels. It defines pollution based on both physical effects on the environment and human reactions. The optimal level of pollution is where the marginal net private benefit curve intersects with the marginal external cost curve. This represents the point where the private benefit of pollution equals the external social cost. The document also examines different approaches to achieving the optimal pollution level, such as pollution taxes, emissions standards, and bargaining between polluting firms and affected communities.

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Danny T Saputra
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121 views13 pages

Economic of Polution

The document discusses the economics of pollution and optimal pollution levels. It defines pollution based on both physical effects on the environment and human reactions. The optimal level of pollution is where the marginal net private benefit curve intersects with the marginal external cost curve. This represents the point where the private benefit of pollution equals the external social cost. The document also examines different approaches to achieving the optimal pollution level, such as pollution taxes, emissions standards, and bargaining between polluting firms and affected communities.

Uploaded by

Danny T Saputra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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2.

The Economics of Pollution


The optimal level of pollution
The economic definitions of pollution is dependent upon
both some physical effect of waste on the environment
and a human reactions to the physical effect.
The physical effect




Biological (Species change, ill-
health)
Chemical (effect of acid rain on
building surfaces)
Noise

The Human reaction





Distaste
Unpleasantnees
Distrees
Concern
Anxiety
Loss of
welfare
Optimal Eksternality
We are now in position to identify of the optimal of
eksternality. It is where the two curves intersect, where
MNPB (Marginal Net Private Benefit)=MEC (Marginal
Eksternal Cost)


Q
MNPB


MEC
Q
MEC
Optimal Eksternality



Q*
MNPB
Q
MEC
Economic
definition
of optimal
pollution
MNPB=MEC
A
B C
D
Manfaat=A+B+C
Biaya=B+C+D
Manfaat
sosial=A-D
Manfaat=A+B
Biaya=B
Manfaat sosial=A
Optimal pollution levels with positive asssimilative capacity



Wa
Cost,
Benefit
Q
MEC
Level
Economic
Activity (Q)
MNPB=MEC
W*
Q Q* Qa
0
Optimal pollution by bargaining



Q*
MNPB
Q
MEC
Level of
Economic
activity (Q)
MNPB=MEC
A
B C
D
0
Optimal pollution tax (Pigovian Tax)



Q*
MNPB
Q
MEC
MNPB-t*
MNPB=MEC
A
B C
D
0
NSB=PQ-C(Q)-EC(Q)
NSB/Q=P-C/Q-EC/Q=0
Maximasing NSB
P=C/Q+EC/Q=SC/Q
P-C/Q=EC/Q NPB/Q=EC/Q
MNPB=MEC
t*=EC/Q
t*
Pollution charges and abatement costs



MAC2
MAC1
MEC
Pollution
abatement
Cost
W1 Q W2 0
Pollutio
n
t*
Optimal pollution: the abatement cost-eksternal cost approach
MAC
Pollution charges and abatement costs



MEC
a-b
Cost
a
b
0
Pollution
Optimal pollution: the abatement cost-eksternal cost approach
MAC
MNPB
MAC<MNPB
Which means it is
cheaper abatment
pollution than
reduce output
Three incidence of a pollution tax



MNPB
Cost,
Benefit
MEC
Level
Economic
Activity (Q)
Q Q* A
0
a b
c
t*
Emissions
The inefficiency of standard



Wa
Cost,
Benefit
Wb
MEC
Level
Economic
Activity (Q)
MNPB=MEC
W*
Q Q* Qa
0
Penalty
P*
P
S
Pollution
Equivalence of tax and standard



a
Cost,
Benefit
e
MEC
Level
Economic
Activity (Q)
b
Q Q* Q 0
tax
d
c
S
MNPB true
MNPB false
Standard versus tax



Cost,
Benefit
MEC
Polluting
activity
Q Q* Q 0
tax
MNPB true
MNPB false
Standard
prefered
Standard versus tax



Cost,
Benefit
MEC
Polluting
activity
Q Q* Q 0
tax
MNPB true
MNPB false
Tax prefered

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