chapter  12
What Is the Optimal Level of Pollution?
Pages 7

The conventional analysis goes as fol lows. With the demand curve DD', the uncorrected long-period market equilibrium output of X is equal to OM. The 'optimal output' OQ occurs where the resultant marginal social valuation measured by curve EE' is equal to the marginal resource cost CC', an output that can be realized by imposing an 'optimal tax' TG on each unit of X. 2 The 'optimal pol lution' , which has to remain in the economy, and be suffered by the pollution victims, is that associated with output OQ, and valued, or rather, 'costed' , by society at a sum equal to the area ED TG.