The Economics of the Environment
Read this chapter to apply marginal benefit and marginal cost analysis to show how society can achieve efficient solutions to environmental problems.
3. Alternatives in Pollution Control
3.2. Answer to Try It! Problem
The paper mill will reduce its pollution until the marginal benefit of polluting equals the tax. In this case a tax of $70 would cause the paper mill to reduce its pollution to 4 tons, the efficient level. At pollution levels below that amount, the marginal benefit of polluting exceeds the tax, and so the paper mill is better off polluting and paying the tax. At pollution levels greater than that amount, the marginal benefit of polluting is less than the tax.