Economists often argue that a system of tradable pollution permits is cost- effective because

Question

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Tradable pollution permits allow firms to choose their level of pollution abatement based on the price of the permits. Firms with a low marginal cost of abatement will choose to reduce their pollution levels and sell their excess permits to firms with a higher marginal cost of abatement. This results in a more efficient allocation of resources and reduces the overall cost of abatement for society. Firms with a high marginal cost of abatement will choose to purchase permits rather than abating at a higher cost, which also reduces overall costs. Thus, the market determines the optimal level of pollution abatement based on the price of the permits, which is the same for all firms.

Economists Often Argue That a System of Tradable Pollution Permits