(group) What is the optimal level of pollution from the standpoint of society? Please answer this question with words and a graph.
From a classmate:
The optimal level of pollution, in terms of the economic way of thinking, is that level at which the marginal benefit is equivalent to the marginal cost. In terms of a graphical illustration, the optimal level of pollution would the point where a line or curve depicting the marginal cost of reducing pollution (sloping from southwest to northeast; Cost on Y axis and reduction of pollution on X axis) intersects a line or curve depicting the marginal benefit of clean air (demand for clean air; sloping from northwest to southeast; Benefits of Clean Air on Y axis and percent reduction of pollution on X axis).
My response: At what point in time do you measure this?
One of my problems with using economic way of thinking on this is it's too short-sighted. We tend to think of the short term demand and compare it against the short term costs. The externality here is the cost we don't take into account, the fact that the costs to clean up pollution rise. The externality is that we think someone else (our children, or someone in the future) will pay for the clean-up, not us. If the curves were reflected what the public will know in the future, I'd say it's optimal. As it is, it merely reflects what people are willing to pay for right now.