Chapter 4

Pollution Problems: Must We Foul Our

Own Nests?

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What Is Pollution?

• The Environment and Its Services- Exhaustible resources- Replaceable resources- Waste disposal

• Recycling Wastes and the Concept of Pollution- Pollution occurs when recycling processes fail to prevent

wastes from accumulating in the environment

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Common Forms of Pollution

• Air Pollution- Carbon monoxide- Sulfur dioxides- Nitrogen oxides- Hydrocarbons- Particulates

• Water pollution- Level of dissolved oxygen- Materials and matter

• Land pollution- Dumping of wastes- Tearing up Earth’s surface

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Demand and Marginal Private Benefit

1 2 3 4 5 6

2

4

6

8

10

12

$

Quantity of pizza

D = MPB

14

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Externality in Consumption

1 2 3 4 5 6

2

4

6

8

10

12

$

HIV vaccine

MPB

MSB

14MSB = MPB ± Externality

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Supply and Marginal Private Cost

1 2 3 4 5 6

5

6

7

8

9

10

$

Quantity of pizza

11

S = MPC

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Externality in Production

1 2 3 4 5 6

5

6

7

8

9

10

$

Quantity of pizza

11

MSCMSC = MPC ± Externality

S = MPC

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Market Equilibrium without Externalities

1 2 3 4 5 6

2

4

6

8

10

12

$

Quantity of pizza

D = MPB

14

S = MPC

3.5

7

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Why Polluters Pollute

• Property rights in the environment either nonexistent or not enforced

• Much of environment’s services shared by entire population

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Pollution and Resource Allocation

Reams per day

Price $

D = MPB = MSB

S = MPC

MSC

9

10

11

r1r0

A

B

C

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Pollution and Resource Allocation

Kilowatt-hours per day

Price $

D = MPB = MSB

S = MPC

MSC

10

12

r1r0

A

B

C

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The Appropriate Level of Pollution Control

(1) (2) (3) (4) (5) (6) (7)

Pollution Control or Eliminated

Stench

Total Social Cost of Control

($000)

Marginal Social Cost of Control

($000)

Per-Person Marginal Benefit

of Control

Marginal Social Benefit of Control

($000)

Total Social Benefit of Control

($000)

Net Social Benefit of

Control ($000)

1st 10% 10 10 10.00 100 100 90

2nd 10% 20 10 8.00 80 180 160

3rd 10% 30 10 6.00 60 240 210

4th 10% 40 10 4.00 40 280 240

5th 10% 50 10 2.00 20 300 250

6th 10% 60 10 1.60 16 316 256

7th 10% 70 10 1.20 12 328 258

8th 10% 80 10 .80 8 336 256

9th 10% 90 10 .40 4 340 250

10th 10% 100 10 .20 2 342 242

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What Can Be Done About Pollution? Direct Controls

• Assumes regulatory agency can determine economically desirable level of pollution

• Achieving efficient allocation of permissible pollution among polluters

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What Can Be Done About Pollution? Indirect Controls

Pollution control100%10% C*

Z

T2

T1

T*

MB = MPB = MSB MC = MPC = MSCDollars per unit

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McGraw-Hill/IrwinEconomics of Social Issues, 17/e

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What Can Be Done About Pollution?Creation of Pollution Rights Markets

• Pollution rights license• Pollution rights market• Clean Air Act of 1990