Consider the production of pesticide that pollutes a lake used by a trout farmer.A marketable permit
A)creates an efficient outcome when the price of the permit is set equal to the external cost.
B)cannot result in the same outcome as when property rights are assigned to the pesticide producer.
C)cannot result in the same outcome as when property rights are assigned to the trout farm.
D)cannot result in the same outcome as when the government imposes a Pigovian tax.
E)creates an efficient outcome when the price of the permits is set equal to the external benefit.

Question

Quizplus · Accepted Answer

Marketable permits internalize the external cost of pollution by assigning property rights to the pollution permits and allowing them to be bought and sold in a market. When the price of the permit is set equal to the external cost, the market will reach an efficient outcome where the marginal cost of polluting is equal to the marginal benefit of producing the pesticide.

Consider the Production of Pesticide That Pollutes a Lake Used