#MAC DRAW FUNCTIONS MAC#

#MAC DRAW FUNCTIONS MAC#

Alternatively, we can interpret both MD and MAC as costs.

The efficient level of emissions (the level that maximizes social net benefits) would then be where MD and MAC are equal (MAC=MD), the point of intersection of MAC and MD.

That is, they are social marginal benefits and social marginal costs of reducing pollution.

MD can be interpreted as the marginal benefit of reducing emissions (damages saved), and MAC is the marginal cost of reducing emissions.

Let us assume that MD and MAC have been evaluated from the perspective of society.

Aggregate marginal abatement function of the industry is the horizontal summation of the MACs of individual firms (just as is the industry supply, or the marginal cost of production).

For the same source, its MAC function may shift with time periods because of improvement in technology of pollution control.Different sources, i.e., polluters, may have different MAC functions because of different technology of abatement available to them.Area below the curve measures total abatement costs of achieving a reduction in emissions.Note that there is always an upper limit on abatement costs, which is the cost of stopping operations of the polluting plant (zero emission).We will later discuss in more length the equimarginal principle of achieving a target in the least cost, or cost effective, manner. In other words, pollution abatement is being carried out in a cost-effective manner. This function reflects the minimum costs of achieving different levels of emission reduction.At its right end, the curve starts from the maximum level of emissions with no abatement efforts, i.e., from the uncontrolled level of emissions.The higher the emission reduction, the greater the marginal abatement cost.This function denotes the additional cost of achieving one more unit decrease in level of emissions.

The marginal damage function is a population-specific function it may shift with an increase in the number of people exposed to the pollutants.Let us focus on marginal damage from a non-cumulative pollutant (a pollutant which does not accumulate over time).Marginal damage is a time-specific function it may shift with time because of changes in natural environment.The area below the function measures total damage.There is a threshold below which marginal damage is zero.The curve assumes that marginal damage increases with increasing emissions.Draw an upward-sloping marginal damage curve. Marginal damage function is a relationship between quantity of emissions and the damage caused by emissions.If total damages increase from $30,000 to $35,000 when emissions increase from 10 tons per week to 12 tons per week, marginal damage is $2,500 per ton.Marginal damage is the additional damage caused by an additional unit of emission. The benefit of pollution control is a reduction in damages of lives and properties. Pollution causes many types of damages.Thus, the total weight of raw material and energy inputs to economy must be balanced by the total amount of residuals flowing to the environment. According to the First Law of Thermodynamics (also known as the Law of Conservation of Matters), matters only change in shape, size, or phases, the total weight is conserved.Environmental economics is the study of the flow of residuals (see the box diagram) and its impact in the natural world.During production and consumption processes, residuals are emitted to Nature. Economy uses the resources to produce goods that are then consumed. Nature provides raw materials and energy to the economy.Draw a box diagram to show linkages between Nature and economy.Linkage Between Economy and Environment.Excessive emphasis to market goods in the short run may damage the assimilative capacity of the environment and thus future productive capability of an economy (this shifts the PPF inwards).A short-run choice can affect long-run choices between environmental quality and market goods.Value of environmental quality vis-a-vis market goods may differ among societies according to educational level, income, and information.Values placed by a society on environmental quality and on market goods (the social indifference curve, derived from social welfare function) determine the choice of the society where to locate on the PPF.The more the production of market goods, the lower the environmental quality, given a state of technical know-how.Production possibility frontier of two goods: market goods and environmental quality (draw a PPF).Trade-off between Market Goods and Environmental Quality.

Mac draw functions