Which statement is TRUE?
A) Mandating that every firm emit no more than X amount of pollutants is the most efficient method of reducing pollution.
B) A system of tradable allowances increases pollution because firms can pay for the right to pollute.
C) To maximize social surplus, the burden of reducing pollution should be allowed to vary by industry.
D) If the EPA cares about the sum of consumer and producer surplus, they should ignore the impact of pollution reduction on the profitability of firms.

Question

Quizplus · Accepted Answer

Allowing the burden of reducing pollution to vary by industry will result in the most efficient distribution of resources, as it takes into account the differences in costs and benefits of reducing pollution in each industry. Mandating a specific amount for every firm may result in some firms having to spend more than others to comply, which is not efficient. A system of tradable allowances creates incentives for firms to reduce their pollution levels, as they can sell their unused allowances to other firms. Ignoring the impact of pollution reduction on the profitability of firms would not be wise, as it could result in unintended consequences, such as firms leaving the market or reducing their investments in innovation.

Which Statement Is TRUE