Chapter 7: Introduction
Air Pollution: Balancing Benefits and Costs

This chapter emphasizes the economic aspects of air pollution. It provides a brief overview of the principal air pollution problems and an analysis of how these problems arise naturally in a market economy.

The principal tools for correcting these problems are authorized by the Clean Air Act. Users will find an extensive discussion of the features of this act. We explain how it works, and then we evaluate its effectiveness in reducing air pollution. We also examine the benefits and costs of air quality regulations. The chapter closes with an examin:ation of the two means favored by economists for reducing the costs of environmental regulation: pollution (Pigovian) taxes, and marketable pollution permits.

Instructional Objectives

After completing this chapter, your students should know:

1. The causes and consequences of the principal air pollution problems.
2. The difference between waste and pollution.
3. The rules for determining the efficient levels of production, pollution, and pollution control.
4. Why a competitive market tends to produce too much pollution and create a net social loss.
5. The principal features of the Clean Air Act.
6. The accomplishments of air quality regulation in the United States.
7. The costs and benefits attributable to air quality regulation.
8. How the costs of environmental regulation can be reduced by using Hgovian taxes and marketable pollution permits.

Terms from Previous Chapters

You should review the terms in this section at the beginning of your discussion of the chapter.

marginal cost (Chapter 3)
marginal benefit (Chapter 3)
marginal social cost (Chapter 2)
marginal social benefit (Chapter 2)
efficient output (Chapter 2)

Key Terms
These terms are introduced in this chapter.

marginal external cost (MEC)
marginal private cost (MPC)
net social loss
property rights
common property resource
emissions reduction credit
pollution tax

Additional References

In addition to the references in the text, instructors may wish to read or assign one or more of the following:

1. Tom Tietenberg, Environmental and Natural Resource Economics, 3rd ed. (New York, N.Y.: Hatper Collins, 1992), pp. 369-376 and 406-412.
2. Wallace E. Oats, "Markets for Pollution Control," Challenge (May-June 1984), pp. 11-17.
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