Lecture 18 - 11/18/2009 Announcements Reading for today...

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11/18/2009 1 ± Reading for today ± text Ch 15 pp. 424-450 (394-414 5 th edition) ± Reading for Monday ± text Ch 10 pp. 268-287 (256-272 5 th edition) Announcements ± World Bank report “Cost of Pollution in China” ± Pollution costs in China amount to US$ 100 billion per year, about 5.8% of GDP Pollution in China ± Air and Water pollution is responsible for 750,000 premature deaths annually in China ± 16 cities in the world with the worst air pollution are in China Total Cost of Pollution Externality ± total cost of pollution to society ± cost of pollution abatement to firm ± higher if pollution is lower Cost ($) ± cost of damage to society ± higher if pollution is higher 6 to Society Pollution Private Total Cost of Pollution Abatement Total Social Damage of Pollution Total Cost of Pollution Cost ($) Externality ± best for society minimizes costs ± firm would choose a higher level of pollution where cost of abatement is 0 ± firm would choose too much pollution 6 to Society Pollution Private Total Cost of Pollution Abatement Total Social Damage of Pollution QP* QP C Externality ± analyze with marginal cost and marginal benefit ± marginal benefit of abatement (MBA) ± society avoids additional damage from extra pollution ± marginal cost of abatement (MCA) ± firm’s extra cost of pollution abatement ± higher if pollution is lower 6 ± lower if higher pollution is lower Marginal Benefit of Abatement Pollution Marginal Cost of Abatement $/unit ± MBA higher than MCA ± inefficient when there is externality in production ± efficient level of pollution where MCA = MBA Externality ±
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This note was uploaded on 03/21/2010 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Lecture 18 - 11/18/2009 Announcements Reading for today...

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