18TradingRightsHandout

18TradingRightsHandout - Externalityu total cost of...

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1 Total Cost of Pollution to Society Externality u total cost of pollution to society u cost of pollution abatement to firm u higher if pollution is lower Pollution Cost ($) Private Total Cost of Pollution Abatement Total Social Damage of Pollution u cost of damage to society u higher if pollution is higher Total Cost of Pollution to Society Pollution Cost ($) Private Total Cost of Pollution Abatement Total Social Damage of Pollution Externality u best for society minimizes costs QP* u firm would choose a higher level of pollution where cost of abatement is 0 QP C u firm would choose too much pollution Externality u analyze with marginal cost and marginal benefit Pollution ($) Marginal Cost of Abatement u marginal social damage (MSD) u society incurs additional costs from extra pollution u higher if pollution is higher Marginal Social Damage u marginal cost of abatement (MCA) u firm’s extra cost of pollution abatement u higher if pollution is lower or marginal benefit of abatement
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2 Pollution ($) Marginal Cost of Abatement
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18TradingRightsHandout - Externalityu total cost of...

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