Economics - Eliminating All Pollution Is Worse Than Bad
ECONOMICS ESSAY
Topic: “While pollution is ‘bad’, eliminating all is worse than ‘bad’.”
Word Count: 1150
Pollution has only become a global problem, or been recognised as a global problem in the last few years. The question at hand, of eliminating all pollution can be worse than 'bad', warrants validity as it would severely decrease the standard of living (and many other technological advances that make our life pleasurable) along with the goods and services provided by the polluters. It is not feasible to eliminate all pollution, nor is pollution purely a problem of industrial societies. The issue for economists is how to reach the optimal level of pollution as there is distortion interfering with the working of what is known as the ‘invisible hand’ (markets automatically channeling self-interest toward socially desirable ends). What must be discussed is the importance of government intervention and the notion of externalities caused by pollution. External costs produce one type of market failure and that market failure leads to inefficiency in the allocation of resources.
Society has to pollute at a reasonable level. We should not pollute past the assimilative capacity of the resources unless we find a technology that will clean up the pollutants. This can be extremely expensive; therefore, society must pollute at a quantity at which its total benefits exceed its total costs by the greatest amount possible. This occurs at a level where the marginal benefit of an additional unit of pollution equals its marginal cost. Marginal benefit refers to what people are willing to give up in order to obtain one more unit of a good, while marginal cost refers to the value of what is given up in order to produce that additional unit. Additional units of a good should be produced as long as marginal benefit exceeds marginal cost.
In the above graph, we can see that where the marginal social benefit (MSB) is equal to the marginal social cost (MSC) of environmental
Topic: “While pollution is ‘bad’, eliminating all is worse than ‘bad’.”
Word Count: 1150
Pollution has only become a global problem, or been recognised as a global problem in the last few years. The question at hand, of eliminating all pollution can be worse than 'bad', warrants validity as it would severely decrease the standard of living (and many other technological advances that make our life pleasurable) along with the goods and services provided by the polluters. It is not feasible to eliminate all pollution, nor is pollution purely a problem of industrial societies. The issue for economists is how to reach the optimal level of pollution as there is distortion interfering with the working of what is known as the ‘invisible hand’ (markets automatically channeling self-interest toward socially desirable ends). What must be discussed is the importance of government intervention and the notion of externalities caused by pollution. External costs produce one type of market failure and that market failure leads to inefficiency in the allocation of resources.
Society has to pollute at a reasonable level. We should not pollute past the assimilative capacity of the resources unless we find a technology that will clean up the pollutants. This can be extremely expensive; therefore, society must pollute at a quantity at which its total benefits exceed its total costs by the greatest amount possible. This occurs at a level where the marginal benefit of an additional unit of pollution equals its marginal cost. Marginal benefit refers to what people are willing to give up in order to obtain one more unit of a good, while marginal cost refers to the value of what is given up in order to produce that additional unit. Additional units of a good should be produced as long as marginal benefit exceeds marginal cost.
In the above graph, we can see that where the marginal social benefit (MSB) is equal to the marginal social cost (MSC) of environmental
References: Websites: Daniel Phaneuf, 2007, 'The Economics of Pollution Control ', Available: Zac Mulett, 2009, ‘Consequences of the failure to incorporate negative externalities into energy prices’, Available: http://www.zmeng.com.au Accessed 20 September 2011 Tim Haab, 2006, 'What we should do with pollution tax revenues? ', Available: McHugh, A. 2007. Energy Economics Course Notes: Externalities. Murdoch University. E-Journals: Harry Clarke (2011) “Some Basic Economics of Carbon Taxes”, Australian Economic Review 44: 2, pp 123-136 Hua Wang & David Wheeler (2003) “Equilibrium Pollution and Economic Development in China”, Environment and Development 8: 451-466