Once the tradable pollution permits have been issued to firms:
A)each firm will reduce the level of pollution it generates.
B)the government determines the price of the permits.
C)firms with the highest cost of pollution abatement will have the greatest willingness to pay for the permits.
D)firms with very low pollution abatement costs can purchase more permits.

Question

Quizplus · Accepted Answer

Firms with the highest cost of pollution abatement will have the greatest willingness to pay for the permits, as it will be more cost-effective for them to purchase permits instead of investing in expensive pollution control equipment. This creates a market for the permits, with the price being determined by the demand from firms with high costs of pollution abatement and the supply of permits available in the market. Firms with very low pollution abatement costs may not need to purchase as many permits, as it may be cheaper for them to reduce their pollution levels than to buy permits. Ultimately, the goal is for all firms to reduce their pollution levels, but the market for tradable pollution permits provides an incentive for firms to do so in the most cost-effective way.

Once the Tradable Pollution Permits Have Been Issued to Firms