A government passes a new law allowing only 1,000 tons of pollution per day to be generated and simultaneously sells 1,000 transferable rights to emit one ton each of pollution per day. Which of the following is true?
A) The pollution will be created by those least willing and able to pay the damages.
B) The pollution will be created by those most willing and able to pay for the right to pollute.
C) The funds collected by the government will be enough to compensate any individuals harmed by the pollution.
D) Pollution will increase from zero to 1,000 units per day.
E) There will be no incentive for polluters to try to sneak emissions past government monitoring devices.

Question

Quizplus · Accepted Answer

The system of selling transferable rights to pollute ensures that those who value the ability to pollute the most (i.e., those most willing and able to pay for the rights) will purchase the rights, thus creating pollution.

A Government Passes a New Law Allowing Only 1,000 Tons