Editing Pollution (section)

== Socially optimal level ==
{{See also|Right to a healthy environment}}
Society derives some indirect [[utility]] from pollution; otherwise, there would be no incentive to pollute. This utility may come from the consumption of goods and services that inherently create pollution (albeit the level can vary) or lower prices or lower required efforts (or inconvenience) to abandon or substitute these goods and services. Therefore, it is important that policymakers attempt to balance these indirect benefits with the costs of pollution in order to achieve an efficient outcome.<ref>{{cite journal|title=18.1 Maximizing the Net Benefits of Pollution {{!}} Principles of Economics|url=https://open.lib.umn.edu/principleseconomics/chapter/18-1-maximizing-the-net-benefits-of-pollution/|access-date=7 March 2018|website=open.lib.umn.edu|date=17 June 2016|language=en-US}}</ref>{{additional citation needed|date=July 2022}}
[[File:Pollution- A Negative Externality in Production.png|thumb|upright=1.8|A visual comparison of the free market and socially optimal outcomes]]
It is possible to use [[environmental economics]] to determine which level of pollution is deemed the social optimum. For economists, pollution is an "external cost and occurs only when one or more individuals suffer a loss of welfare". There is a socially optimal level of pollution at which [[welfare spending|welfare]] is maximized.<ref>{{Cite book|last=William)|first=Pearce, David W. (David|title=Economics of natural resources and the environment|date=1990|publisher=Johns Hopkins University Press|others=Turner, R. Kerry.|isbn=978-0-8018-3987-0|location=Baltimore|oclc=20170416}}</ref> This is because consumers derive utility from the good or service manufactured, which will outweigh the [[social cost]] of pollution until a certain point. At this point the damage of one extra unit of pollution to society, the [[marginal cost]] of pollution, is exactly equal to the [[marginal benefit]] of consuming one more unit of the good or service.<ref name=":1">{{Cite book|last=R.|first=Krugman, Paul|title=Microeconomics|date=2013|publisher=Worth Publishers|others=Wells, Robin.|isbn=978-1-4292-8342-7|edition=3rd|location=New York|oclc=796082268}}</ref>

Moreover, the feasibility of pollution reduction rates could also be a factor of calculating optimal levels. While a study puts the global mean loss of life expectancy (LLE; similar to [[Years of potential life lost|YPLL]]) from air pollution in 2015 at 2.9 years (substantially more than, for example, 0.3 years from all forms of direct violence), it also indicated that a significant fraction of the LLE is unavoidable in terms of current economical-technological feasibility such as aeolian dust and wildfire emission control.<ref name="10.1093/cvr/cvaa025">{{cite journal |last1=Lelieveld |first1=Jos |last2=Pozzer |first2=Andrea |last3=Pöschl |first3=Ulrich |last4=Fnais |first4=Mohammed |last5=Haines |first5=Andy |last6=Münzel |first6=Thomas |title=Loss of life expectancy from air pollution compared to other risk factors: a worldwide perspective |journal=Cardiovascular Research |date=1 September 2020 |volume=116 |issue=11 |pages=1910–1917 |doi=10.1093/cvr/cvaa025 |pmid=32123898 |pmc=7449554 |issn=0008-6363}}</ref>

In markets with pollution, or other negative externalities in production, the [[free market]] equilibrium will not account for the costs of pollution on society'''.''' If the social costs of pollution are higher than the private costs incurred by the firm, then the true supply curve will be higher. The point at which the social marginal cost and market [[demand]] intersect gives the socially optimal level of pollution. At this point, the quantity will be lower and the price will be higher in comparison to the free market equilibrium.<ref name=":1"/> Therefore, the free market outcome could be considered a [[market failure]] because it "does not maximize efficiency".<ref name=":0"/>

This model can be used as a basis to evaluate different methods of internalizing the externality, such as [[tariff]]s, a [[Pigouvian tax]] (such as a [[carbon tax]]) and [[Emissions trading|cap and trade]] systems.