A cap-and-trade policy is most often used to solve problems associated with

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Cap-and-trade policies are most commonly used to address the problem of negative externalities generated by the production of goods. This policy sets a limit (cap) on the amount of pollution or emissions allowed, and companies must purchase permits (trade) to emit pollutants. This incentivizes companies to reduce their emissions because they can sell unused permits to other firms or face penalties for exceeding the cap. This policy is effective in reducing pollution while allowing flexibility for firms to make their own decisions on how to reduce emissions.

A Cap-And-Trade Policy Is Most Often Used to Solve Problems