66 CHAPTER 3 Environmental History, Politics, and Economics
How can policy makers decide when it is better to
stop polluting the well, clean the water in the well, or
import water from another location? Economists analyze
the marginal costs of environmental quality and of other
goods to answer such questions. A marginal cost is the ad-
ditional cost associated with one more unit of something.
The trade-off between protecting environmental
quality and producing more goods involves balancing
marginal costs of two kinds: (1) the external cost, in
terms of environmental damage, of more pollution (the
marginal cost of pollution) and (2) the cost, in terms of
giving up goods, of eliminating pollution (the marginal
cost of pollution abatement).
Determining the marginal cost of pollution involves
assessing the risks associated with the pollution—for
example, damage to health, property, or agriculture.
(See Chapter 4 for a discussion
of risk assessment.) Once the risk
is known, it must be monetized.
This means that injuries, deaths,
loss of species, and other dam-
ages must be assigned dollar values.
Let’s consider a simple example involving the mar-
ginal cost of sulfur dioxide, a type of air pollution pro-
duced during the combustion of fuels containing sul-
fur. Sulfur dioxide is removed from the atmosphere as
acid rain, which causes damage to the environment,
particularly aquatic ecosystems. Economists add up the
harm of each additional unit of pollution—in this exam-
ple, each ton of sulfur dioxide added to the atmosphere.
As the total amount of pollution increases, the harm of
each additional unit usually also increases, and as a result,
the curve showing the marginal cost of pollution slopes
upward, as in Figure 3.17.
The marginal cost of pollution abatement tends
to rise as the level of pollution declines, as shown in
Ê}ÕÀiÊΰ£n. It is relatively inex-
pensive to reduce automobile ex-
haust emissions by half, but costly
devices are required to reduce the
remaining emissions by half again.
For this reason, the curve show-
ing the marginal cost of pollution
abatement slopes downward.
In Figure 3.19, the two
marginal-cost curves from Fig-
ures 3.17 and 3.18 are plotted
together on one graph, called
a cost– benefit diagram. Econo-
mists use this diagram to identify
the point at which the marginal
cost of pollution equals the marginal cost of abatement—
that is, the point where the two curves intersect. As far
as economics is concerned, this point represents anmarginal cost of
pollution The added
cost of an additional
unit of pollution.marginal cost
of pollution
abatement The
added cost of
reducing one unit of a
given type of pollution.
cost–benefit
diagram A diagram
that helps policy
makers make decisions
about costs of a
particular action and
benefits that would
occur if that action
were implemented.>À}>ÊVÃÌÊvÊ«ÕÌÊUÊ}ÕÀiÊΰ£ÇÊ
At low pollution levels, the environment may absorb the
damage, so that the marginal cost of one added unit of pollution
is near zero. As the level of pollution rises, the cost in terms of
human health and a damaged environment increases sharply.
At very high levels of pollution, the cost soars.
Marginal cost
of pollutionAmount of pollution (in tons of waste discharge)Low High
LowHighCost of damage (in dollars)Marginal cost of pollution abatement
UÊ}ÕÀiÊΰ£nÊ
At high pollution levels, the marginal cost of eliminating one unit
of pollution is low. As more and more pollution is eliminated from
the environment, the cost of removing each additional (marginal)
unit of pollution increases.Amount of pollution (in tons of waste discharge)Low High
LowHighCost of control (in dollars)Marginal cost
of pollution
abatement