Firm X pays firm Y $345 for a pollution permit. This expenditure on the part of firm X is considered a __________. Firm Y ends up spending $200 to eliminate some pollution. This expenditure on the part of firm Y is considered a __________.

Question

Quizplus · Accepted Answer

The payment of $345 by firm X to firm Y for a pollution permit is considered a transfer because it is a payment from one firm to another without the production of new goods or services. Firm Y's expenditure of $200 to eliminate pollution is a resource cost because it involves the use of resources (labor, capital, etc.) to reduce pollution.

Firm X Pays Firm Y $345 for a Pollution Permit