Exhibit 17-5 In Exhibit 17-5, if the government sells the right to pollute a river, A)firms will emit Q₁ units of pollutant at a price of P₀ each B)firms will emit Q₂ units of pollutant at a price of P₀ each C)firms will emit Q₀units of pollutant at a price of P₃ each D)firms will emit Q₁ units of pollutant at a price of P₁ each E)firms will emit Q₂ units of pollutant at a price of P₃each

Question

Quizplus · Accepted Answer

When the government sells the right to pollute a river, firms will emit QS1U1B11S1U1B0 units of pollutant at a price of PS1U1B11S1U1B0 each. This is because at a price of PS1U1B11S1U1B0, the cost of reducing pollution is greater than the cost of buying a permit to pollute. This results in an equilibrium where the marginal benefit of polluting (PS1U1B11S1U1B0) equals the marginal cost of reducing pollution (MC1U1B11S1U1B0).

Exhibit 17-5 in Exhibit 17-5, If the Government Sells