Question

Use marginal cost-marginal benefit analysis to determine if the following statement is true or false: “The optimal amount of pollution abatement for some substances, say dirty water from storm drains, is very low; the optimal amount of abatement for other substances, say cyanide poison, is close to 100 percent.”

Short answer

The statement “the optimal amount of pollution abatement for some substances say dirty water from storm drains, is very low; the optimal amount of abatement for other substances, say cyanide poison, is close to 100 percent” is true.

Step-by-step solution

Step 1. The optimal level of pollution abatement

The diagram given below shows

• The marginal benefit of reducing a unit of pollution using a downward sloping MB curve (law of diminishing marginal utility, that is, the greater the reduction, the lower will be the utility from the next unit reduction).
• The marginal cost of reducing unit pollution using an upward sloping MC curve.
• The intersection of these two curves gives the optimal level of pollution reduction, which is Q*.

If MB > MC, an increase in reduction of pollution will increase efficiency. If MC > MB, the additional reduction will reduce efficiency as the opportunity cost of resources used to reduce the pollution is higher.

Step 2. Marginal cost-benefit analysis to find an optimal level of pollution abatement for dirty water and cyanide poison.

The marginal benefit associated with removing dirty water from storm drains lower than the marginal benefit associated with the removal of cyanide poison. The reason is cyanide poison is highly dangerous that can cost lives. Thus, a reduction in the poison level will result in higher benefits compared to dirty water removal.

This can be explained using the diagram below:

The diagram shows that:

• $M{B}_{CP}$is the marginal benefit curve for cyanide poison removal;
• $M{B}_{DW}$is the marginal benefit curve for dirty water removal;
• The intersection of these two MB curves with the MC curve results in role="math" localid="1642759957993" $Q_{CP}$and $Q_{DW}$levels of pollution reduction, respectively.

We can see that the optimal level of cyanide reduction is higher than the optimal level of dirt water reduction$\left(Q_{CP}>Q_{DW}\right)$. $Q_{CP}$ is nearly 100 percent. Thus, we can say that the statement in the question is true, that is, the optimal amount of pollution reduction for substances like cyanide is very high, and the optimal amount of pollution reduction of substances like dirty water is very low.