OPTIMAL LEVEL OF POLLUTION

Optimal level of pollution is defined as the level of pollution that maximizes social welfare by
equating the marginal cost of additional pollution with the marginal benefit. The concept of the
optimal level of pollution recognizes that there may be benefits to allowing pollution which would be
lost if pollution were to be eliminated.
Marginal cost of pollution is the additional environmental cost that results due to the production of
one additional unit of pollution. Marginal benefit of pollution is similar to marginal cost in that it is
a measurement of the change in benefits over the change in quantity.

While marginal cost is measured on the producer’s end, marginal benefit is looked at from the
consumer’s perspective—in this sense it can be thought of as the demand curve for environmental
improvement, representing the tradeoff between environmental improvement and other things we
could do with the resources needed to gain the improvement.

From an economic perspective, the socially optimal level of pollution occurs when the marginal
benefit of the last unit of pollution exactly equals the marginal cost of pollution.  At this level the net
benefits to society are maximized.  If all of the externalities of pollution are accounted for, the
resulting level of pollution will be optimal.