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By the end of this section, you will be able to:

  • Show how pollution charges impact firm decisions
  • Suggest other laws and regulations that could fall under pollution charges
  • Explain the significance of marketable permits and property rights
  • Evaluate which policies are most appropriate for various situations

Market-oriented environmental policies create incentives to allow firms some flexibility in reducing pollution. The three main categories of market-oriented approaches to pollution control are pollution charges, marketable permits, and better-defined property rights. All of these policy tools, discussed below, address the shortcomings of command-and-control regulation—albeit in different ways.

Pollution charges

A pollution charge    is a tax imposed on the quantity of pollution that a firm emits. A pollution charge gives a profit-maximizing firm an incentive to figure out ways to reduce its emissions—as long as the marginal cost of reducing the emissions is less than the tax.

For example, consider a small firm that emits 50 pounds per year of small particles, such as soot, into the air. Particulate matter, as it is called, causes respiratory illnesses and also imposes costs on firms and individuals.

[link] illustrates the marginal costs that a firm faces in reducing pollution. The marginal cost of pollution reduction, like most most marginal cost curves increases with output, at least in the short run. Reducing the first 10 pounds of particulate emissions costs the firm $300. Reducing the second 10 pounds would cost $500; reducing the third ten pounds would cost $900; reducing the fourth 10 pounds would cost $1,500; and the fifth 10 pounds would cost $2,500. This pattern for the costs of reducing pollution is common, because the firm can use the cheapest and easiest method to make initial reductions in pollution, but additional reductions in pollution become more expensive.

A pollution charge

 The graph shows the incentive for a firm to reduce pollution in order to avoid paying a pollution charge.
If a pollution charge is set equal to $1,000, then the firm will have an incentive to reduce pollution by 30 pounds because the $900 cost of these reductions would be less than the cost of paying the pollution charge.

Imagine the firm now faces a pollution tax of $1,000 for every 10 pounds of particulates emitted. The firm has the choice of either polluting and paying the tax, or reducing the amount of particulates they emit and paying the cost of abatement as shown in the figure. How much will the firm pollute and how much will the firm abate? The first 10 pounds would cost the firm $300 to abate. This is substantially less than the $1,000 tax, so they will choose to abate. The second 10 pounds would cost $500 to abate, which is still less than the tax, so they will choose to abate. The third 10 pounds would cost $900 to abate, which is slightly less than the $1,000 tax. The fourth 10 pounds would cost $1,500, which is much more costly than paying the tax. As a result, the firm will decide to reduce pollutants by 30 pounds, because the marginal cost of reducing pollution by this amount is less than the pollution tax. With a tax of $1,000, the firm has no incentive to reduce pollution more than 30 pounds.

Questions & Answers

what is Economic
Mbarohey Reply
Economic is a social science that study human behavior in relationship with end and scarce means which have alternative uses
Economics is an inquiry into nature that causes wealth of nations.
what are the importance of economic
it helps us use our limited resources to satisfy our unlimited wants
economic is the science of wealth
it's helps us to be current on what's going on in the world
economics can be defined as the science of wealth
what are the advantages of sole proprietorship
is the study of mankind in the ordinary business
What is the formula for calculating elasticity?
Haruna Reply
government spending increase will cause economic grew
Jia Reply
what is trade by batter
Iko Reply
trade involves the transfer of good or services from one person to another, often in exchange for money.
Now trade by batter :it may define as form of trading in which good are exchange directly for other goods without the use of money as medium of exchange
is it good to trade with something with a value but given something which has no value
trade in batter means the exchange of goods and services without using money
It may be defined as an exchange of goods to satisfy the needs of two parties
mention six factors that explain efficiency and productivity of labour
fanelchainz Reply
mention six factors that explain efficiency and productivity of labour
factors that explain efficiency of labor are 1.population, 2.technology, 3.education, 4.working environment, 5.incentives (tax holidays) and 6.religious or cultural beliefs.
What is demand
SoFIA Reply
is the abulity and willingness of a consumer to purchase goods and services at a particular peeiod of time in a given price
what is a central bank
Fadhil Reply
transactionsss with all banks of any country
what is elastic
fadoju Reply
how is equilibrium defined in financial market?
infinity Reply
what is the definition of money
Money is define as anything that is generally acceptable as a means of exchange nd settlement of dept
what is elastic
what is demand and supply
demand is ability of a consumer to purchase a particular good at a particular time
supply is the ability of a person to be able to provide his costumers with what they need
how do choices end up determining what, how and for whom goods and services are produced
Ayesha Reply
They end up by using the scale of preference
there are 10 000 seats available for the Wimbledon tennis Championships. the price per ticket is fixed by the organisers. the supply of seats is thus: A. completely elastic B. completely inelastic C. elastic D. unitary elastic E. elastic which option is the answer?
Esihle Reply
unitary elastic
unitary elastic
unitary elastic
completely inelastic
what is international trade
Naomi Reply
the trade between two or more countries outside the territory of own country
it's an international trade
Multilateral trade it is
It is the exchange of goods and services among two or more countries.
Oh yes
is the buying and selling of Good's and services outside the country
what is consumer choice as the result of maximization choice ?
what is the difference between public corporation and public limited liability
how do monopolistic firm make profit in the short run and long run
Ediga Reply
oligopolistic competition is known to have a kinked demand curve .why there is such a tease my in oligopolistic form only
please can anyone help me in econs
Manuel in which context
please in utility
what is demand ?
Tonight Reply
The amount of some goods or services consumers need to purchase
The amount of goods or services that consumers are willing and can afford to purchase.
it is goods and services consumers are willing and able to buy at given price over a given period of time
as quantity of good and service that a consumer is willing and able to purchase at a given price and at the particular market price.
The amount of goods and services consumers are able and willing to buy and pay for at a given price and at given point in time.
refers to the quantity of goods and services that customers are willing and able to purchase at various prices over a period of time
Demand may define as goods and services which a consumer is willing to buy at a given price over a perticular market price
what are subsidies
Yaya Reply
how do trade unions deal with subsidies
bro can you explain decision making
Decision making is a process to use your limited resources for best productive purpose.
explain why an increase in national income may not always lead to improvement in economic wellbeing of all the citizens?
How many types of labour do we have pls
skilled and unskilled labour
Thanks 🙏
what are the factors that affects efficiency of labour ?
What are tools of economics analysis
Adu Tumwah,,, The tools of economics analysis are; Charts, graphs, equations, table, arithemetic mean, etc.
Subsidies are payments made by the government to the producers of goods and services

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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