Other things equal, if the government increased the quantity of pollution rights to be sold,
A)pollution would not be affected
B)the price of pollution rights would rise, and the amount of pollution would decrease
C)the price of pollution rights would fall, and the amount of pollution would decrease
D)the price of pollution rights would fall, and the amount of pollution would increase
E)the price of pollution rights would rise, and the amount of pollution would increase

Question

Quizplus · Accepted Answer

If the government increases the quantity of pollution rights to be sold, the supply of pollution rights would increase, resulting in a surplus. This surplus would lead to a decrease in the price of pollution rights, making it cheaper for firms to buy these pollution rights. Cheaper pollution rights would encourage firms to pollute more as the cost of doing so would be lower. Therefore, the amount of pollution would increase.

Other Things Equal, If the Government Increased the Quantity of Pollution