When you finish this chapter, you should: Define the key terms of economics and opportunity cost and understand how a production possibilities frontier exemplifies the trade-offs that exist in life, distinguish between increasing and constant opportunity cost and understand why each might happen in the real world, analyze an argument by thinking economically, while recognizing and avoiding logical traps. | Lecture Issues in economics today - Chapter 19 Chapter 19 The Environment McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Chapter Outline HOW CLEAN IS CLEAN ENOUGH THE EXTERNALITIES APPROACH THE PROPERTY RIGHTS APPROACH ENVIRONMENTAL PROBLEMS AND THEIR ECONOMIC SOLUTIONS McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. How Clean is Clean Enough Economists answer most how much is enough questions with the same answer until the marginal benefit equals the marginal cost. The right level of environmental cleanliness is achieved when the value of cleaning the environment a little more equals the cost of doing so. McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. The Dirty Room Example Cleaning your room dorm room or your own bedroom can be done to many degrees A short time can be spent getting things off the floor high marginal benefit low marginal cost . More time can be spent with vacuuming and straightening moderate marginal benefit moderate marginal cost . Even more time can be spent deep cleaning removing stains from carpets dusting all shelves and moving furniture so as to clean behind them for most low marginal benefit and high marginal cost. McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. Modeling Environmental Marginal Cost Cleanup Marginal Benefit Marginal Cost Marginal Benefit EQ Environmental Quality McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. The Externalities Approach Externalities are the effects of a transaction that hurt or help people who are not a part of that transaction. When a product affects someone other than the consumer of producer in a negative way such as pollution economists suggest that the market has failed. McGraw Hill Irwin 2002 The McGraw Hill Companies Inc. All Rights Reserved. When the Market Works for Everyone P Value to the Consumer A Supply 0ACQ Consumers Pay Producers OP CQ The Variable Cost to
