ECON101: Principles of Microeconomics (2021.A.01)

Whether economists measure the marginal benefits and marginal costs of emissions or, alternatively, the marginal benefits and marginal costs of abatement, the policy implications are the same from an economic perspective. As shown in Panel (a) of Figure 18.4 "The Efficient Level of Emissions and Pollution Abatement", applying the marginal decision rule in the case of emissions suggests that the efficient level of pollution occurs at six pounds of CO emitted per week. At any lower level, the marginal benefits of the pollution would outweigh the marginal costs. At a higher level, the marginal costs of the pollution would outweigh the marginal benefits.

Figure 18.4 The Efficient Level of Emissions and Pollution Abatement

In Panel (a) we combine the marginal benefit of emissions (MB_E) with the marginal cost of emissions (MC_E). The efficient solution occurs at the intersection of the two curves. Here, the efficient quantity of emissions is six pounds of CO per week. In Panel (b), we have the same curves read from right to left. The marginal cost curve for emissions becomes the marginal benefit of abatement (MB_A). The marginal benefit curve for emissions becomes the marginal cost of abatement (MC_A). With no abatement program, emissions total ten pounds of CO per week. The efficient degree of abatement is to reduce emissions by four pounds of CO per week to six pounds per week.

As shown in Panel (b) of Figure 18.4 "The Efficient Level of Emissions and Pollution Abatement", application of the marginal decision rule suggests that the efficient level of abatement effort is to reduce pollution by 4 pounds of CO produced per week. That is, reduce the level of pollution from the 10 pounds per week that would occur at a zero price to 6 pounds per week. For any greater effort at abating the pollution, the marginal cost of the abatement efforts would exceed the marginal benefit.