W1B Equimarginal Principle Flashcards
What is the equimarginal principle
Determines the optimal amount of pollution
Determines the optimal allocation of pollution
control among firms and individuals
This is an important consideration when designing efficient environmental policy
What is inefficiency
Inefficiency occurs when an action violates normative criteria of efficiency. There is an alternative course of action which produces more efficiency. If there is potential for pareto improvement then it means an alternative is potentially more efficient.
What is Pareto Optimality
The Pareto frontier – all allocations for which we cannot make one person better off without making another worse off.
An allocation is Pareto optimal if it lies on the Pareto frontier
This is efficiency in allocation