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Appendix B: A Simple Diagrammatic Example of an Externality
Pages 420-422

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From page 420...
... The upward sloping line labeled "Marginal Abatement Cost" measures the cost to the firm for each additional ton of pollution reduction. In the absence of any policy intervention, the hypothetical firm will engage in no pollution abatement and incur no private abatement costs.
From page 421...
... More generally, the economically optimal level of pollution abatement occurs at the point where marginal benefits equal marginal costs. To see why, consider an additional ton of abatement from 100 to 101 tons.
From page 422...
... They will affect the economically optimal level of pollution abatement in the example but not the fundamental concepts that the example illustrates.

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