Economists often argue that a system of tradable pollution permits is cost-effective because

Question

Quizplus · Accepted Answer

The system of tradable pollution permits sets a price for permits and allows firms to choose their level of abatement as long as their marginal cost of abatement equals or is lower than the price of a permit. Firms with a lower marginal cost of abatement will choose to abate, while firms with a higher marginal cost of abatement will choose to buy permits and abate less. This leads to the most efficient allocation of abatement efforts, where the firms with the lowest marginal cost of abatement will undertake the most abatement, while the firms with the highest marginal cost of abatement will undertake the least amount of abatement. This leads to a cost-effective reduction of pollution overall. Therefore, Choice E is the best choice.

Economists Often Argue That a System of Tradable Pollution Permits