In terms of their economic effects, which of the following policies toward pollution are most similar to one another?
A)regulation and corrective taxes
B)regulation and tradable pollution permits
C)corrective taxes and tradable pollution permits
D)All of these policies produce the same economic effects.

Question

Quizplus · Accepted Answer

Corrective taxes and tradable pollution permits both aim to internalize the externality of pollution by giving polluters incentives to reduce their pollution level. Corrective taxes achieve this by imposing a tax on each unit of pollution emitted, while tradable pollution permits achieve this by issuing a limited number of permits that can be traded among polluters. Both policies result in a market-based solution that can efficiently allocate resources to reduce pollution. Regulation, on the other hand, does not create the same market-based incentives or flexibility as corrective taxes or tradable pollution permits. Therefore, C is the most appropriate choice.

In Terms of Their Economic Effects, Which of the Following