The Economics of Pollution: Marginal Cost of Pollution & Optimum Amount of Pollution

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  • 0:05 Economics of Pollution
  • 0:59 Marginal Cost of Pollution
  • 1:49 Marginal Abatement Cost
  • 3:47 Marginal Benefit &…
  • 4:51 Lesson Summary
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Lesson Transcript
Instructor: Rebecca Gillaspy

Dr. Gillaspy has taught health science at University of Phoenix and Ashford University and has a degree from Palmer College of Chiropractic.

There is an optimum amount of pollution where marginal benefit equals the marginal cost of pollution. Learn how marginal cost, marginal abatement cost and marginal benefit are considered when determining the optimum amount of pollution in this lesson.

Economics of Pollution

Did you know that your body's digestive system contains good bacteria? The word 'bacteria' usually conjures up negative images of infections and colds, but there are bacteria in your body that you could not live without. These bacteria perform helpful functions, such as extracting nutrients from hard-to-digest foods and making certain vitamins. If you were to take a drug that completely cleaned out all of the bacteria from your digestive system, your health would suffer.

Just as it doesn't make good sense to reduce your body's bacteria level to zero, it doesn't always make good economic or environmental sense to lower pollutants to zero. In other words, when we consider the economics of pollution, there is an optimum amount of pollution where society's wellbeing is maximized with respect to environmental quality. In this lesson, we will look at how that optimum level is evaluated.

Marginal Cost of Pollution

To understand how this level is reached we need to define a few terms. Marginal cost is a term that comes from the study of economics that is defined as the change in total cost that arises due to producing one more unit of a good. For example, if a widget factory decides to produce a new line of widgets, the marginal cost of the new widget line would include all of the additional costs that come with extra materials, added production and more worker hours.

If we think of marginal cost of pollution, we consider additional environmental cost that results due to the production of one additional unit. Using our example, an additional environmental cost might be an increase in greenhouse gas emissions that come from the increase in widget production.

Marginal Abatement Cost

Marginal abatement cost is another term for us to take a look at as we are working toward our understanding of the optimum amount of pollution. This term can be defined as the cost associated with eliminating a unit of pollution. In general, an abatement cost is the expense a company incurs in order to address or clean up a detrimental effect it created.

For example, a coal-burning power plant will produce emissions of sulfur dioxide, which are gases that are harmful to the environment. To reduce this problem, it may install smokestack scrubbers, which are a type of technology used to remove sulfur dioxide emissions from the exhaust of power plants. The cost associated with installing and using the scrubbers would be an example of an abatement cost.

As the amount of pollution released goes down, the marginal abatement cost tends to go up. This is because more aggressive pollution controls tend to cost more money. Economists and company analysts work to find the sweet spot where there is a balance between the cost of pollution and costs of cleanup. Using our example of the scrubbers, if the marginal cost of pollution is greater than the marginal cost of abatement or cleanup, then it is in the best interest of society for the power plant to install and use the scrubbers. If the marginal cost of pollution is less than the marginal cost of abatement, then the company may not need to install the scrubbers.

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